The study undertaken by researchers from the University of Surrey, in partnership with the Bank of France, sheds new light on the substantial role that the world’s largest exporters play in the volatility of international trade. Their research, published in the Journal of International Economics, suggests that the activities of these colossal enterprises are major contributing factors to the significant fluctuations experienced in global trade markets. The findings are particularly stark in illustrating how disruptions within these companies can have cascading effects across the global economy, as seen during periods of crisis, such as the financial downturn of 2008 and the more recent Covid-19 pandemic.

The research team utilised a comprehensive dataset encompassing firm-level export and import information from France from 1993 to 2020. By meticulously analysing the monthly performance metrics of thousands of exporters, they could identify and quantify the influence of large firms on overall trade dynamics. Notably, the study unveiled that variations in the export activities of these large entities could account for up to 40% of the total fluctuations seen in aggregate exports. Moreover, it highlighted that these firms are unusually susceptible to macroeconomic disturbances.

Throughout major economic crises, the top 1% of exporters bore the brunt of the impact, experiencing significant downturns in their export volumes. The research indicates that this heightened sensitivity is predominantly due to how these firms respond to substantial demand shocks rather than their mere presence in global supply chains.

Juan Carluccio, Professor of International Trade at the University of Surrey and the study’s lead author, remarked on the paradoxical nature of the findings. Despite the general perception that larger firms lend stability to the economy, the evidence suggests otherwise, indicating that these firms are, in fact, a central source of volatility. Carluccio explained that understanding how these firms react to economic shocks is crucial for policymakers aiming to devise more effective strategies to mitigate the impact of future economic disturbances.

The researchers also dissected the growth in aggregate exports into two key components: the average growth rate of all exporters and a ‘granular residual’, which elucidates the influence exerted by the larger firms. This analysis reinforced that the most prominent exporters tend to react unfavourably to macroeconomic shifts, reverberating across the economy, leading to pronounced declines in overall trade volumes.

In his continued commentary, Professor Carluccio highlighted the imperative role that these large exporters play in sculpting the contours of global trade. He emphasised the necessity for policy interventions that support these major players, ensuring they possess the resilience to withstand economic adversities without compromising the stability of global trade. By fostering a supportive environment for these pivotal entities, policymakers could catalyse a more robust and stable trading ecosystem that benefits all stakeholders.

In conclusion, this research underscores the critical importance of focusing on the performance and support of large exporting firms to fortify the global economy against the backdrop of increasing trade volatility. As international trade continues to face unprecedented challenges, the insights provided by this study could prove invaluable in guiding efforts to create a more resilient and stable trade framework globally.

More information: Juan Carluccio et al, From macro to micro: Large exporters coping with global crises, Journal of International Economics. DOI: 10.1016/j.jinteco.2024.104037

Journal information: Journal of International Economics Provided by University of Surrey