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Structural Change and Global Trade

No. 333 (Revised July 2019)

Logan T. Lewis, Ryan Monarch, Michael Sposi and Jing Zhang

Abstract: Services, which are less traded than goods, rose from 58 percent of world expenditure in 1970 to 79 percent in 2015. In a trade model featuring nonhomothetic preferences and input-output linkages, we find that such structural change has restrained the growth of world trade to GDP by 15 percentage points over this period. This is about half the magnitude that declining trade costs have boosted openness. Even absent rising protectionism, structural change dampens openness as well as the measured gains from trade through endogenous responses of expenditure shares to the trade regime. In the long run, policies that liberalize services trade complement structural change, boosting openness and welfare. In the face of continued structural change, high-income countries stand to gain more from trade liberalization in services than in goods, and low-income countries, the opposite.


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