Exports as a factor behind the poor performance of the UK economy

This is from Gavyn Davies and Juan Antolin-Diaz:

We conclude that fiscal policy is responsible for a little less than half of the UK’s under-performance compared with the US, with much of the rest being due to the sluggish growth of UK export markets in recent years. The decline in UK oil production, and the possible under-recording of UK GDP in the official statistics, should also be taken into account. Therefore, while there is certainly some truth in the fiscal story, it is far from the whole truth.

So why the big difference with the U.S. performance?

We find that a large amount of the difference is explained by the fact that US export markets have grown much more strongly than UK markets over the past 5 years. This has been for two reasons. First, the UK’s greater exposure to the recession-hit markets of the eurozone has been very damaging, especially in the past two years. Second, and actually much more important, the UK’s lack of exposure to the rapidly growing markets in the emerging economies has been a major structural problem in recent years. The US, in contrast, has greatly increased its exposure to the emerging markets, notably in Latin America.

The summary blog post is here, and underlying research is here. Note that the bigger you make the multiplier, the more that exports should matter as well.


So collapse in exports to EU has about the same effect as contractionary fiscal policy. However, why is the EU not buying stuff? Wait, could it be ... _their_ contractionary fiscal policies causing this?

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'So why the big difference with the U.S. performance?'

Let's actually compare and contrast.

Britain's export deficit failure -

'Britain's trade performance improved markedly in September as higher exports and a smaller imports bill cut the monthly deficit to £2.7bn.

Prompting hopes that the long-expected rebalancing of the economy may at last be occurring, the Office for National Statistics said the shortfall was down from the £4.5bn recorded in August.

The ONS said the UK notched up a deficit of £8.4bn in trade in goods following a 1.1% rise in exports and a 3.9% decline in imports. This was offset by a £5.7bn surplus in services, unchanged on the month.

Recent months have seen volatility in the monthly trade data and the ONS said a better guide to the UK's underlying performance came from the figures for the latest three months.

These showed a deficit of £8.5bn in the three months to September, down from £10.1bn in the previous quarter but slightly higher than the £8bn shortfall in the third quarter of 2011.'


The U. S. sucess in contrast -

' WASHINGTON: The US trade deficit widened in August, in line with analyst expectations, as US goods exports fell for the fifth consecutive month, a government report showed on Thursday.

The monthly trade gap increased to $44.2 billion, from an upwardly revised estimate of $42.5 billion in July, the Commerce Department said. Analysts were expecting an August trade gap of about $44.0 billion.

Overall US exports dropped 1.0 percent as troubles in Europe continue to weigh on global growth, while imports fell 0.1 percent in a sign of faltering US demand for consumer products, autos and capital goods.

Exports of oil, chemicals and other industrial supplies fell to the lowest level since February 2011, helping pull down the entire goods category, despite an increase in capital goods exports to the second-highest level on record.

Services exports defied the overall trend and rose to a record $52.8 billion, due mostly to increases in professional and business services and transportation.

Services imports also set a record, reflecting licensing fees to broadcast the Summer Olympic games in Britain.

The average price for imported oil rose slightly in August to $94.36 per barrel, helping to push the monthly oil import bill higher.

A separate Labor Department report showed that overall US import prices rose 1.1 percent for the second consecutive month in September, while US export prices rose 0.8 percent.

Both increases were above expectations. Analysts surveyed before the report had expected a 0.7 percent increase in import prices and a 0.4 percent rise in export prices.'


OK, not completely comparable, so let's extract a few numbers - Britain's recent enough balance of trade defict - under 5 billion dollars.

America's? Over 40 billion, though a solid half of that is oil. Which is not to be ignored, of course, but let's try to keep the UK's export failure in a bad as light as possible. So, $2.480 trillion (2011) appears the number to use to compare the U.K. to the U.S.'s $14.447 trillion in 2010.

Which works out to a multiplier of about 6 - meaning that the U.K.'s export failure, at a deficit of very roughly 30 billion dollars, is still somehow a smaller number than America's export success model of a 40 billion dollar plus trade deficit.

And some say arithmetic is a lost skill when measuring failure compared to success.

As is accurate writing - most of the figures without time unit are 'per month,' of course.

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Of course you're a mercantilist; it's all of a piece with your ardent Germanophilia.

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From the paper:

A consensus has developed that the fiscal multiplier has proven to be much higher than was expected in 2010, because short term interest rates cannot be reduced below zero in order to compensate for the effect of fiscal tightening on aggregate demand.

So therefore the conclusion of the paper is that QE is impossible? Is that actually "cannot" or merely "will not?" Quite an important difference.

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One aspect missing from Gavyn Davies' analysis was the difference in inflation between the UK and US, thereby reducing real GDP of the UK compared to the US. One factor driving this has been the relatively higher cost of housing services in the UK.

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The whole analysis is silly. You can't divorce exports from other parts of aggregate demand as if it were independently determined. Stimulus works iff it affects the exchange rate, which in turn determines NX. "Oil and Gas" are part of aggregate supply and might affect the slope of the response function to simulus, but they have no (0, zilch, nada) effect on NGDP.

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If allow for the impact of shale oil and gas production in the US, then my initial estimates suggest 40%+ of the difference between the US and UK, ex-fiscal measures, can be explained by the differences in the country's respective oil and gas sectors.

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Hey! I know this is somewhat off topic but I was wondering
which blog platform are you using for this site? I'm getting sick and tired of Wordpress because I've had problems with hackers and I'm looking at alternatives for another platform. I would be great if you could point me in the direction of a good platform.

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