This paper investigates the interlinkage in the business cycles of large-country economies in a free-trade equilibrium. We consider a two-country, two-good, two-factor general-equilibrium model with Cobb-Douglas technologies and linear preferences. We also assume decreasing returns in both sectors. We first identify the determinants of each country's accumulation pattern in autarky equilibrium, and secondly we show how a country's business cycle may spread throughout the world once trade opens. We prove indeed that under free trade, globalization and market integration may generate a contagion of the capital-exporting country's business cycles and thus have destabilizing effects on the capital-importing country. Copyright 2009 The Authors. Journal compilation 2009 Blackwell Publishing Ltd.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.