An Analysis on compositional effect during the great trade collapse

Abstract

This thesis focuses on one of the famous hypotheses on The Great Trade Collapse which is compositional effect hypothesis. It includes three different parts. The first part examines the method of Levchenko, Lewis, Tesar (2010) for testing compositional effect, attempts to reproduce the results and conducts some robustness analysis of their results. The second part suggests some modifications on the existing model and applies the newly modified model to the US data. The findings suggest that compositional effect is an important factor of the US trade collapse during the The Great Recession. In the last part, the new model is applied to Turkey and the findings show that the compositional effect is not a significant factor of the trade reduction in Turkey. This result could be an indicator which shows that trade of the emerging countries are not governed by the same factors that drive developed country trade falls during the recent economic crisis.