Volumes in international trade

Volumes in international trade

Volumes in international trade

There has been a spectacular increase in the number of global

supply chains created in recent years and in the volumes passing

through existing chains. One of the forces driving this growth

has been cheaper, more efficient communications and office

technology. This enables multinationals and strategic alliances

of firms to effectively split up the supply chain and produce

increasing numbers of components in different countries according

to comparative advantages. However, there are other forces at play.

The price of oil affects transport costs and, accordingly, the optimal

locations for production in relation to final markets. These types

of influences are referred to as (real economy) forces.

The crisis in global financial markets that began in mid-2007

is a good reminder that the real economy and real trade are also

affected by financial markets and the performance of the banking

46 (OECD Insights: (International Trade

(system. The crisis involved volatile changes in (investment

patterns around the world and associated volatile exchange rate

movements that made it very difficult for multinationals to plan

future developments with their global supply chains. Reduced

demand from (trading) partners had repercussions everywhere,

leading to cutbacks in output from factories not only in the OECD

countries but also in China and the other emerging economies.

One of the reasons for this turmoil was the availability of

cheap finance in selected OECD countries after 2001. This led

to riskier (investments) by OECD firms in emerging markets than

would otherwise have been undertaken. In short, global supply

chain expansion after 2001 was very likely much higher than will

be the case over the next decade, and we are likely to see some

contraction because the cost of capital (the interest rates companies

have to pay) has risen. When the crisis struck in 2007 there was a

flight to financial safety and some closure of productive capacity

in particular economies. Financial markets can have important

(effects on the real (trading economy.