Many people think – or shall we say: feel? – that international trade leads to economic crisis, and even more people seem to believe this when we are in the middle of one. This may be so because a more complex and flexible economy simply looks less stable or because it makes us afraid of losing political control over the economy. But, whatever the reason, it just isn’t true. And it is very important to confront this fear with some facts, because it has been trade that helped milions of people around the world to get out of poverty and the last thing the world economy needs now is a protectionist backlash.
Daniel Griswold, director for the Center for Trade Policy Studies, has written a paper earlier this year, in which he shows that economic downturns have been “mercifully shorter, shallower, and less frequent” in the era of globalisation:
“The ‘Great Moderation’ means that Americans are spending more of their time earning a living in a growing economy and less in a contracting economy. According to the National Bureau of Economic Research, our economy has been in recession a total of 16 months in the past 25 years, or 5.3 percent of the time. In comparison, between 1945 and 1983, the nation suffered through nine recessions totaling 96 months, or 21.1 percent of that time period. In any given month, the country was four times more likely to be in recession in the post-war decades before 1983 than since then. And even if the U.S. economy has already entered a recession in 2008, the expansion that began after the 2001 recession would have lasted six years-making it the fourth-longest expansion since 1945.”
Economic Contractions Are Becoming Less Common
|Time Period||Number of Contractions||Contractions||Expansions||% of time in contraction|
|1855-1944||21||21 months||29 months||41|
|1945-1982||9||11 months||45 months||21|
|1983-2007||2||8 months||95 months||5|
Source: National Bureau of Economic Research.
“America’s recent experience of a more globalized and less volatile economy has not been unique in the world. Other countries that have opened themselves to global markets have been less vulnerable to financial and economic shocks. Countries that put all their economic eggs in the domestic basket lack the diversification that a more globally integrated economy can fall back on to weather a slowdown. A study by Jeffrey Frankel and Eduardo Cavallo for NBER found that a country that increases trade as a share of its gross domestic product by 10 percentage points is actually about one-third less likely to suffer sudden economic slowdowns or other crises than if it were less open to trade.“