Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/280428 
Year of Publication: 
2023
Series/Report no.: 
WTO Staff Working Paper No. ERSD-2023-10
Publisher: 
World Trade Organization (WTO), Geneva
Abstract: 
Using monthly data on trade in goods between January 2016 and May 2023, this study assesses the impact of recent shocks on the fragmentation of the global economy, looking in particular at the dynamics of friend-shoring, near-shoring and decoupling between the world's two largest economies. Results based on gravity model regressions with high-dimensional fixed effects show that trade flows have become more sensitive to geopolitical distance since the start of the war in Ukraine, leading to the first signs of overall trade fragmentation along geopolitical lines, i.e. friend-shoring. Trade in goods between hypothetical East and West blocs has grown 4 per cent slower than intra-bloc trade since the start of the war. On the other hand, we find no evidence of an increased regionalisation of world trade since the shock of the COVID-19 pandemic or the war in Ukraine. Therefore, our results suggest that near-shoring strategies did not have a large impact on world trade. Finally, our results confirm that the increased trade tensions between the world's two largest economies have significantly reduced their bilateral trade, a trend that has been exacerbated by the geopolitical tensions and uncertainty created by the war in Ukraine.
Subjects: 
global trade outlook
empirical studies of trade
fragmentation
decoupling
JEL: 
F01
F14
F52
Document Type: 
Working Paper

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