What is the import intensity of global aggregate demand?

Abstract

While many studies look at the impact of trade on the supply side, notably through its impact on international vertical specialization and global supply chains, fewer papers examine how import penetration affects aggregate demand. The increased import intensity of aggregate demand has been a feature of the globalization process until the 2008–2009 financial crisis. Since then, the import / trade intensity of some aggregate demand components seems to have behaved differently. Using input / output tables for almost forty countries accounting for the bulk of global trade, this paper calculates the import intensity of aggregate demand over the period 1995–2014. The most pro-cyclical components of aggregate demand, i.e. investment, exports, and private consumption, are also found to be most import intensive; net government expenditures are less so. The most import intensive demand component of all is investment, which globally has an import content of 37 %. Unsurprisingly, investment is the only aggregate demand component that, by 2014, had not recovered to its pre-crisis level, a reason that might explain the relative slowdown of trade since the end of the financial crisis, for any given level of import intensity. Further, import intensity of investment seemed to have leveled off, if not fallen, in some emerging market economies. While the phenomenon is not long enough to be examined in detail, this is a change which might affect the pace of trade globalization.