Trade Collapses and Trade Slowdowns: Evidence from Some Central and Eastern European Countries

Abstract

World trade suddenly plummeted in the last quarter of 2008 after the bankruptcy of Lehman brothers and the subsequent meltdown in financial markets. Even if the following recovery was impressive, trade growth is now noticeably below trend. The anaemic momentum in global export volume questions whether the financial crisis has permanently changed the trade landscape. In this paper, we address trade elasticities in some Central and Eastern European economies by estimating a standard import function equation. We employ a dynamic panel Auto Regressive Distributed Lag model with the Common Correlated Effects Mean Group estimator to cope with cross-sectional dependence. The model is fit on a sample of eight countries over the period 1995:q1–2017:q1. First, we estimate long-run import elasticities with respect to GDP and the relative import price. Then, we discriminate between booms and slowdowns. Results confirm imports respond differently over the business cycle.