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Vertical Specialization and International Business Cycle Synchronization

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  • Costas Arkolakis
  • Ananth Ramanarayanan

Abstract

We explore the impact of vertical specialization-trade in goods across multiple stages of production-on the relationship between trade and business cycle synchronization across countries. We develop an international business cycle model in which the degree of vertical specialization varies with trade barriers. With perfect competition, we show analytically that fluctuations in measured total factor productivity are not linked across countries through trade. In numerical simulations, we find little dependence of business cycle synchronization on trade intensity. An extension of the model to allow for imperfect competition has the potential to resolve these shortcomings. Copyright The editors of the "Scandinavian Journal of Economics" 2009 .

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 111 (2009)
Issue (Month): 4 (December)
Pages: 655-680

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Handle: RePEc:bla:scandj:v:111:y:2009:i:4:p:655-680

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Citations

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Cited by:
  1. Benjamin Bridgman, 2013. "International Supply Chains And The Volatility Of Trade," Economic Inquiry, Western Economic Association International, vol. 51(4), pages 2110-2124, October.
  2. Paulo Santos Monteiro & Luciana Juvenal, 2012. "Trade and Synchronization in a Multi Country Economy," 2012 Meeting Papers, Society for Economic Dynamics 59, Society for Economic Dynamics.
  3. Andrei Zlate, 2010. "Offshore production and business cycle dynamics with heterogeneous firms," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 995, Board of Governors of the Federal Reserve System (U.S.).
  4. Jacob Wibe, 2012. "The Role of Production Sharing and Trade in the Transmission of the Great Recession," University of Western Ontario, Economic Policy Research Institute Working Papers 20123, University of Western Ontario, Economic Policy Research Institute.
  5. Virgiliu Midrigan & Joe Kaboski & George Alessandria, 2012. "Trade, Inventories, and International Business Cycles," 2012 Meeting Papers, Society for Economic Dynamics 762, Society for Economic Dynamics.
  6. Wei Liao & Ana Maria Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," Working Papers 042012, Hong Kong Institute for Monetary Research.
  7. Davis, J. Scott & Huang, Kevin X.D., 2011. "International real business cycles with endogenous markup variability," Journal of International Economics, Elsevier, vol. 85(2), pages 302-316.
  8. Julian di Giovanni & Andrei A. Levchenko, 2010. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 95-124, April.
  9. Ewa Szymanik, 2012. "Business Cycles and Their International Transmission – the Introduction to the Problem," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 7, pages 55-72.
  10. Cacciatore, Matteo, 2014. "International trade and macroeconomic dynamics with labor market frictions," Journal of International Economics, Elsevier, vol. 93(1), pages 17-30.
  11. Pundit,Madhavi, 2013. "Comovement in business cycles and trade in intermediate goods," Working Papers, National Institute of Public Finance and Policy 13/116, National Institute of Public Finance and Policy.
  12. Matteo Cacciatore, 2012. "International Trade and Macroeconomic Dynamics with Labor Market Frictions," 2012 Meeting Papers, Society for Economic Dynamics 875, Society for Economic Dynamics.
  13. Ana Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," 2012 Meeting Papers, Society for Economic Dynamics 34, Society for Economic Dynamics.

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