Feeling the Pinch
IMF Blog, December 28, 2016
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Bibliographic details
- Authors: iMFdirect
- Published: December 28, 2016
Overview
- Publication: iMFdirect blog entry titled "Feeling the Pinch"
- Date: December 28, 2016
- Context: Summarizes analysis published in the December issue of Finance & Development magazine on how global trade contraction after the global financial crisis reflected changes in consumer choice as well as lower demand.
Key findings and mechanisms
- World trade "essentially collapsed" following the global financial crisis as consumers and businesses cut back spending on both domestic and foreign products.
- Decline in demand reduced the value of global imports and exports.
- Consumer choice contributed: consumers shifted toward cheaper, lower-quality goods.
- Because consumption of higher-quality goods is generally more sensitive to changes in income than that of lower-quality items, a sudden reduction in income may lead to a "flight from quality."
- A "flight from quality" implies households reduce not only the quantity but also the quality of goods consumed, producing a larger contraction in higher-quality imports than in lower-quality imports.
Empirical illustration
- Case studied: wine made in Argentina.
- Finding: In the case of Argentine wine exports, the global financial crisis induced a "flight from quality."
Additional pointers
- The blog points readers to recent IMF analysis, including a recent blog about the IMF’s annual check-up of Argentina’s economy.
- About IMFBlog: a forum for views of IMF staff and officials on pressing economic and policy issues.
- Institutional context: The IMF is based in Washington D.C. and is an organization of 191 countries, working to foster global monetary cooperation and financial stability.
Source: Feeling the Pinch, iMFdirect, December 28, 2016.