Trading Spaces: Openness, Deconcentration, and the Great Recession

This research presents and develops a theory of global trade openness focused on the impact of global economic deconcentration, whereby national economies move toward increasing equality with respect to economic size. In particular, global economic deconcentration is theorized to impact global trade openness through two causal mechanisms: the disaggregation of production and the diversification of the global trade portfolio. In times of non-crisis for the global economy, the disaggregation of production leads to an increase in global trade openness through a macroproduction effect consisting of the growth of global value chains (GVCs). Furthermore, in times of non-crisis, the diversification of the global trade portfolio increases global trade openness through a diminution effect, whereby trade barriers are rendered less effective at decreasing global trade openness due to the existence of more potential export partners. As such, over time, global economic deconcentration is theorized to increase global trade openness. However, in times of crisis, the effects of global economic deconcentration on global trade openness is confounding. Whereas the disaggregation of global production increases the fragility of global trade openness through the bullwhip effect, whereby GVC trade declines more rapidly than aggregate trade; the diversification of the global trade portfolio increases the resilience of global trade openness through a redirection effect, whereby emerging economies can serve as importers of last resort. All in all, the theorized crisis effects of global economic deconcentration suggest a v-shaped recovery in global trade openness inasmuch as the redirection effect outbalances the bullwhip effect. To assess these theoretical claims against the existing explanations for global trade openness in the scholarly literature, this research employs a multi-method approach. First, a series of time-series regression analyses is run using data from 1960-2015 to assess the non-crisis expectations of global economic deconcentration theory. The results of these analyses demonstrate a statistically significant and positive relationship between indicators for global economic deconcentration and global trade openness, controlling for alternative explanatory factors presented in the literature. Furthermore, these results are robust when adjusted for bias related to heteroscedasticity, autocorrelation, and endogeneity. Second, this research presents a case study analysis of the Great Recession using the congruence method, in which the outcomes of the Great Recession are assessed for congruence with the observable expectations of global economic deconcentration. Using time-series data on GVC trade and panel-data on imports from 2004-2013, the outcomes of the Great Recession are found to be congruent with the observable implications of both the bullwhip effect and the redirection effect. Furthermore, these claims of congruence are assessed against the observable expectations of alternative explanations provided in the scholarly literature and in light of certain standards of causal logic such as spuriousness, causal priority, and causal depth. All in all, global economic deconcentration is found to outperform alternative explanations for variations in trade openness during the Great Recession. The final chapter presents a discussion of the theoretical and policy implications of the empirical findings and what global economic deconcentration means for the future of trade openness, particularly given the recent rise of anti-trade populism among developed countries in the West.