Forecasting World Trade: Econometric Model Development

As economies become more open to international trade,also the transmission and propagation of economicfluctuations increases. In particular small and openeconomies are strongly exposed to fluctuations in theglobal business cycle. Hence, the cyclical dynamicsof international trade have implications inmacroeconomic forecasting and international politics. The analysis on income and growth shows that globaltrade is an important factor for sustainabledevelopment. This was the motivation to find aneconometric model that is capable to track the growthpath of world trade. Several univariate processes andmultivariate systems have been tested for theirfitness. The selected determinants of multivariatesystems are based on theory, which suggests thatinvestment activities and monetary policy influencethe development of the global business cycle. The oilprice and other raw material prices also play a keyrole in the economic development. The econometricanalysis illustrates the close relationship of thesedeterminants. While autoregessive processes aresufficient in short-term forecasting, multivariatesystems are superior in forecasting longer time horizons.