Long-run trends in world trade and income

This paper examines the statistical relationship between world trade and world income (GDP) over three different epochs: the pre-World War I era (1870–1913), the interwar era (1920–1938), and the post-World War II era (1950–2000). The results indicate that trade grew slightly more rapidly than income in the late nineteenth century, with little structural change in the trade–income relationship. In the interwar and post-war periods, the trade–income relationship can be divided into different periods due to structural breaks, but since the mid 1980s trade has been more responsive to income than in any other period under consideration. The trade policy regime differed in each period, from the bilateral treaty network in the late nineteenth century to interwar protectionism to post-war GATT/WTO liberalization. The commodity composition of trade has also shifted from primary commodities to manufactured goods over the past century, but the results cannot directly determine the reasons for the increased sensitivity of trade to income.