Sizing Up the Effects of Technological Decoupling

IMF Working Papers, March 12, 2021

Source details

Authors: Diego A. Cerdeiro, Rui Mano, Johannes Eugster, Dirk V Muir, Shanaka J Peiris
Published: March 12, 2021
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781513572673.001

Paper proposes channels through which technological decoupling can affect global growth and embeds these layers in a global dynamic macroeconomic model.
Multiple scenarios differ along two dimensions:
- (i) the coalition of countries (hubs) that initiate the decoupling;
- (ii) whether non-hub countries are also forced to decouple via “preferential attachment” — i.e. by aligning themselves with the hub they trade most with.
Key outcome statement: All global technology hubs lose across scenarios, and losses are largest under preferential attachment.
Representative quantitative statement: Technological fragmentation can lead to losses in the order of 5 percent of GDP for many economies.

Scenario dimensions:
- Coalition of hub initiators of decoupling.
- Presence or absence of preferential attachment by non-hub countries.
Behavioral assumption for preferential attachment: non-hub countries align with the hub they trade most with.
Model type: global dynamic macroeconomic model embedding multiple channels of technological decoupling.

Across scenarios:
- All global technology hubs experience losses.
- Losses are largest when preferential attachment forces non-hub countries to decouple.
Distributional effects:
- Smaller countries with relations that straddle multiple hubs generally lose.
- Countries whose trade is heavily concentrated with one hub may gain in some scenarios due to reduced competition.
Magnitude:
- Technological fragmentation can lead to losses in the order of 5 percent of GDP for many economies.

Subjects: Economic sectors; Exports; Financial crises; Financial sector policy and analysis; International trade; Labor productivity; Production; Productivity; Spillovers; Trade balance.
Keywords: Asia and Pacific; China-United States; Exports; Global; high-tech goods trade; innovation drive; Labor productivity; non-tariff barriers; non-tariff barriers.; Productivity; R&D number; sectoral trade elasticity; Spillovers; Technological decoupling; trade; Trade balance; United States stop; world trade f low.