output growth declined from 1.7 during 1990- 2008 to 0.9 during 2011-19. The decline in the global output elasticity of trade in the decade before the pandemic reflected several factors (World Bank 2015).

Changes in the composition of global demand. The composition of global demand shifted away from advanced economies toward EMDEs and toward less trade-intensive components of aggregate demand. EMDEs, which typically have a lower trade-intensity than advanced economies, accounted for just under two-fifths of global output during 1980-2008 but for about three-fifths during 2010-19 (Cabrillac et al. 2016; World Bank 2015). Investment, which tends to be more trade-intensive than other components of demand, was weak over the past decade, especially in EMDEs (Bussière et al. 2013; Kose et al. 2017). This reflected a number of factors, including a policy-guided shift away from investment-led growth in China and the effects of prolonged weakness of commodity prices on investment in commodity exporters (World Bank 2017, 2019).

Maturing global value chains. Over the past decade, the expansion of global value chains slowed (Antras and Chor 2021; World Bank 2015, 2020a). The share of global value chain-related trade in total world trade grew significantly in the 1990s and early 2000s but has stagnated or even declined since 2011. This has in part reflected rising labor costs in key emerging market economies, a greater appreciation by firms of supply risks in the wake of natural disasters, and mounting trade tensions over the past five years (Cabrillac et al. 2016; Cigna, Gunella, and Quaglietti 2022; World Bank 2020a). Trade in construction and services, which tend not to be embedded in deep global value chains, increased their shares of global trade after 2010 (WTO 2019a).

Trade tensions. A slowing pace of trade liberalization may also have contributed to a lower trade elasticity (World Bank 2015). Tariff rates levelled off in both advanced economies and EMDEs in the early 2000s. At the same time, there was increased use of regulatory measures and other nontariff barriers such as export subsidies, restrictions on licensing or foreign direct investment, and domestic clauses in public procurement (Niu et al. 2018).

# III.2 Pandemic-triggered collapse and recovery: Historical comparison

The global recession of 2020 was the deepest since World War II and was accompanied by a collapse in global trade in goods and nonfactor services of nearly 16 percent in the second quarter of 2020—6 percentage points steeper than the drop in the first quarter of 2009, at the nadir of the global recession triggered by the global financial crisis. In 2020 as a whole, goods trade fell by 7 percent, considerably more than in the average global recession since 1975 (figure 3). Unusually for global recessions, the collapse in global services trade was even larger than the collapse in global goods trade. The decline in services trade was considerably more pronounced and the recovery more subdued than in past global recessions, partly reflecting the collapse in global tourism as countries closed their borders to stem the spread of the pandemic. In 2020, services trade fell by 20 percent, more than twice the average drop of 8 percent in global recessions since 1975.