The last decade of the world trade has been marked by an unprecedented collapse, quick recovery, slowdown, another drop, and recovery. To study cyclical and structural aspects of the recent trend of trade, I use both aggregate and disaggregated trade statistics of a small open economy, South Korea, whose economic success and growth have been heavily dependent on exports. The aggregate trend of the country is surprisingly similar to that of the world, which is why the trend of Korea's export is called a proxy for the world. I show that while the last drop of trade after 2015 has cyclical aspects, there is evidence that the continued slowdown from 2012 is structural: (1) the so-called `China factor' is found in the analysis of trade-income elasticity of the world and China for imports from Korea. (2) The bilateral trade barriers between Korea and its important trading partners are universally tightening. I also show that the firm sizes, destination countries, and the mode of transactions affect disaggregated trade flows during the slowdown periods. It is advisable to diversify main export products to lower the effect of oil prices on export prices and to strengthen the cooperation with ASEAN countries, whose trade barriers have exceptionally diminished throughout the last decade.

Keywords: the Great Trade Collapse, trade slowdown, trade elasticity, trade barriers, Korea
JEL Classification Numbers: F14, O24
 

Executive Summary

1. Introduction

2. Overview of the Last Decade’s Trade

3. Cyclical Aspects of the Trade Drop in 2015

4. Structural Aspects of Trade Slowdown

4.1. Trade-income Elasticity
4.2. Bilateral Trade Barriers

5. Heterogenous Aspects of the Slowdown

5.1. Destination Countries and Firm Sizes
5.2. Intrafirm Trade

6. Conclusion and Policy Implications

References

Appendix

A. Historic Trend of Korean Exports
B. List of Advanced and Emerging Countries
C. Data Sources of Goods Part GDP