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The Impact of Trade Integration on Business Cycle Synchronization for Mercosur Countries

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  • Francesco Grigoli

Abstract

This paper intends to evaluate empirically the impact of reduced trade barriers and increased trade on the synchronization of business cycles. It draws on Frankel and Rose (1998) who reassessed the Mundellian criteria on Optimum Currency Areas (OCAs) and considered their application to be untenable given that trade integration and cycle synchronization may be endogenous. This research aims to test this hypothesis for Mercosur countries. Using a quarterly panel dataset spanning the members since the establishment of the free trade area (FTA) in 1991 until 2008, the empirical findings indicate a positive effect, implying intra-industry trade

Suggested Citation

  • Francesco Grigoli, 2012. "The Impact of Trade Integration on Business Cycle Synchronization for Mercosur Countries," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 9(1), pages 103-131, April.
    • Handle: RePEc:liu:liucej:v:9:y:2012:i:1:p:103-131
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    References listed on IDEAS

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    1. Arize, Augustine C. & Osang, Thomas & Slottje, Daniel J., 2008. "Exchange-rate volatility in Latin America and its impact on foreign trade," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 33-44.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    3. Andrew K. Rose, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," NBER Working Papers 7432, National Bureau of Economic Research, Inc.
    4. Anderton, Robert & Skudelny, Frauke, 2001. "Exchange rate volatility and euro area imports," Working Paper Series 64, European Central Bank.
    5. Andrew Abbott & Joshy Easaw & Tao Xing, 2008. "Trade Integration and Business Cycle Convergence: Is the Relation Robust across Time and Space?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(2), pages 403-417, June.
    6. George S. Tavlas, 2009. "Optimum‐Currency‐Area Paradoxes," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 536-551, August.
    7. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    8. Kwanho Shin & Yunjong Wang, 2005. "The Impact of Trade Integration on Business Cycle Co-Movements in Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 141(1), pages 104-123, April.
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    Cited by:

    1. Piotr Misztal, 2013. "International trade and business cycle synchronization in Poland, the European Union and the Euro Zone," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 7(3), September.
    2. Stanislav Kappel, 2015. "A Comparison of Business Cycles Synchronization in the Euro Area and Some Potential Monetary Unions," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(4), pages 1277-1285.
    3. Isis Gaddis & Janneke Pieters, 2017. "The Gendered Labor Market Impacts of Trade Liberalization: Evidence from Brazil," Journal of Human Resources, University of Wisconsin Press, vol. 52(2), pages 457-490.
    4. Emil Adámek & Stanislav Kappel, 2015. "Empirical Results for Some Monetary Areas According to Optimum Currency Area Criteria," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(3), pages 877-885.
    5. Piotr Misztal, 2014. "Trade integration and business cycles synchronization of Poland (Integracja handlowa a synchronizacja cykli koniunkturalnych Polski i Unii Europejskiej)," Research Reports, University of Warsaw, Faculty of Management, vol. 1(17), pages 62-73.

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    More about this item

    Keywords

    Trade Integration; Business Cycle Synchronization; Mercosur;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F15 - International Economics - - Trade - - - Economic Integration

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