Does the global trade slowdown matter?

Since the Global Financial Crisis, world trade growth has been subdued and lagging slightly behind GDP growth. Trade is growing more slowly not only because global GDP growth is lower, but also because trade itself has become less responsive to GDP. This article reviews the reasons behind the changing trade−income relationship and then investigates its consequences for economic growth. On the demand side, sluggish world import growth may adversely affect individual countries' economic growth as it limits opportunities for their exports. On the supply side, slower trade may diminish the scope for productivity growth through increasing specialization and diffusion of technologies. We find preliminary evidence that the changing trade−income relationship matters, although the quantifiable effects do not appear to be large.