One Size Does Not Fit All: A Comparative Analysis of U.S. Merchandise and Service Trade Flows Pre and Post Great Recession

Abstract

The main purpose of this paper is to quantify the effects of main trade determinants on the United States bilateral merchandise and service trade flows between 1995-2015. To fulfill this goal, this paper uses the Gravity Model and runs regressions on US merchandise imports and exports from/to its 200 trading partners, and U.S. service imports and exports from/to its 70 trading partners. In order to isolate the immediate effects of the Great Recession on U.S. trade from long term trends, the data is divided into three periods: 1995-2007, 2008-2009, and 2010-2015. One main and interesting result is that U.S. merchandise imports became more responsive to partner GDP over the last two decades, and the elasticity of U.S. merchandise exports with respect to partner GDP remained relatively constant. In contrast, the responsiveness of both service imports and exports to partner GDP decreased. Another interesting finding is that trade agreements between the U.S. and its trading partners became especially important for U.S. merchandise imports and exports during the Great Recession.