Global trade patterns in 2050 and its drivers

In this paper, we analyze the drivers of changes in global trade patterns until 2050 using the WTO Global Trade Model — a recursive dynamic computable general equilibrium (CGE) model capable of generating medium and long run baseline projections of the global economy. To isolate the drivers, we first show how trade patterns are projected to change by 2050 due to geographical and sectoral shifts. We then project that: (i) developing countries will export more than developed economies around 2040; (ii) the global share of manufacturing trade will fall while the share of services trade will rise to about 30%; (iii) the comparative advantage of least-developed economies will rise in manufacturing and fall in agriculture and natural resources. In contrast, we project a reversal of these shares in developed economies. Our projections incorporate many trends based on external sources and own estimations such as employment, population and technology growth; changes in the skill composition of the labour force; savings rates; structural change driven by differences in productivity growth and changes in consumer preferences; and changes in both policy-driven and technology-driven trade costs. In the second part of the paper, we identify the main drivers influencing changes in geographical and sectoral patterns of trade and production. We find that both demographic and technological change—i.e., labour force growth, changes in the skill composition and TFP growth—play the most important role in the rising share of developing economies in global trade, whereas the shift from manufacturing to services is driven by changes in skill composition, TFP growth, differential productivity growth and shifting consumer preferences.