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Production fragmentation and business-cycle comovement

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  • Ng, Eric C.Y.

Abstract

International trade increasingly involves trade in goods being produced in fragmentation arrangements across countries, with each country specializing in different stages of a production sequence. This paper examines empirically whether pairs of countries with more bilateral production fragmentation arrangements tend to have more correlated business cycles. Using cross-country data from 30 countries, we find that bilateral production fragmentation has a positive effect while the standard bilateral trade intensity indicator has a negative impact on business-cycle comovement. We also find that the positive effect of trade in complements (captured by bilateral production fragmentation) dominates the negative effect of trade in substitutes (explained by bilateral trade intensity), resulting in an overall positive impact of trade. Hence, bilateral production fragmentation plays a key role underlying the positive response of business-cycle comovement to increases in trade.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 82 (2010)
Issue (Month): 1 (September)
Pages: 1-14

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Handle: RePEc:eee:inecon:v:82:y:2010:i:1:p:1-14

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: International business cycles Comovement Production fragmentation;

References

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Citations

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Cited by:
  1. Hideaki Hirata & M. Ayhan Kose & Christopher Otrok, 2013. "Regionalization vs. Globalization," Koç University-TUSIAD Economic Research Forum Working Papers 1302, Koc University-TUSIAD Economic Research Forum.
  2. Alyson C. Ma & Ari Van Assche, 2012. "Is East Asia’s Economic Fate Chained to the West?," CIRANO Working Papers 2012s-11, CIRANO.
  3. Dong He & Wei Liao, 2011. "Asian Business Cycle Synchronisation," Working Papers 062011, Hong Kong Institute for Monetary Research.
  4. Robert C. Johnson, 2012. "Trade in Intermediate Inputs and Business Cycle Comovement," NBER Working Papers 18240, National Bureau of Economic Research, Inc.
  5. Christopher Kurz & Mine Z. Senses, 2013. "Importing, Exporting And Firm-Level Employment Volatility," Working Papers 13-31, Center for Economic Studies, U.S. Census Bureau.
  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. Christopher Kurz & Mine Z. Senses, 2013. "Importing, exporting and firm-level employment volatility," Finance and Economics Discussion Series 2013-44, Board of Governors of the Federal Reserve System (U.S.).

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