Trésor-Economics No. 6 - Reinterpreting the contribution of foreign trade to growth

The impact of foreign trade on economic activity is usually analyzed by computing the "contribution of foreign to growth". Such an analysis carried on for France emphasises that over the three years from 2003 to 2005, the contribution of foreign trade to growth has been sharply negative.

However, the contribution of foreign trade to growth seems too crude an indicator to yield proper insight into the role of foreign trade in the French economy. It is usually computed as the sum of the contributions of exports and imports. This accounting approach can however prove economically deceptive.

This study describes a method for recalculating the contributions to growth of each component of demand in order to identify more precisely the role played by foreign trade: we calculate the contribution of foreign trade as that of exports less their import content. Similarly the contribution of each of the components of domestic demand is calculated by subtracting their respective import contents.

The resulting picture does not always match the one usual one. For instance in years of booming global trade, such as in 2000 or 2004, one could expect to have identified a large positive contribution to growth. By contrast, the conventional computation method used in national accounts usually does not allow such an identification.

In 2004 global demand grew by 9.4% whereas foreign trade is thought to have had a negative 0.6 percentage point impact on GDP growth. Under the method proposed here, exports net of their import content would in fact have contributed a positive 0.3 percentage point to growth.