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International Transmission Via Trade Links: Theoretically Consistent Indicators of Interdependence for Latin America and South-East Asia

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Author Info

  • Chiara Bentivogli

    ()
    (Banca d'Italia)

  • Paola Monti

    ()
    (Banca d'Italia)

Abstract

The empirical work on the role of trade linkages in the transmission of economic disturbances has been limited to tests on the significance of variables of simple trade shares of partners, both bilateral and in common markets. This approach ignores additional elements deriving from the new open economy macroeconomics, such as country size, the pricing policy of exporters and the substitutability of exports. It also only considers the “first victim” country as the one transmitting the crisis to the others, leaving out the action of all other intra-regional links. This paper bridges this gap by producing theoretically-backed indicators of vulnerability due to trade linkages in a multilateral setting. These indicators are then used to compare the size of trade linkages in Latin America and in South-east Asia, two regions that were affected by financial crises in the 1990s. The proposed indexes show that Latin America is much less vulnerable than Asia to an international transmission of economic disturbances from a country in the same region. This is due to the relatively smaller size of Latin American countries, to the higher share of raw materials in their exports and the lower degree of similarity both of the manufactures exported inside their region and of those exported to their common industrial markets. Moreover, South-east Asian countries are more likely than Latin American ones to transmit economic disturbances to industrial countries due to the higher substitutability of their manufactured exports with those of more advanced economies.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 410.

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Date of creation: Jun 2001
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Handle: RePEc:bdi:wptemi:td_410_01

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Related research

Keywords: trade linkages; currency crises;

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Cited by:
  1. Andrea Zaghini, 2005. "Evolution of trade patterns in the new EU member states," Temi di discussione (Economic working papers) 568, Bank of Italy, Economic Research and International Relations Area.
  2. Filippo Altissimo & Antonio Bassanetti & Riccardo Cristadoro & Lucrezia Reichlin & Giovanni Veronese, 2001. "The construction of coincident and leading indicators for the euro area business cycler of the euro area business cycle," Temi di discussione (Economic working papers) 434, Bank of Italy, Economic Research and International Relations Area.
  3. Roberta De Santis, 2004. "Has Trade Structure Any Importance in the Trasmission of Currency Shocks? An Empirical Application for Central and Eastern European Acceding Countries to Eu," ISAE Working Papers 43, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  4. Paola Caselli & Andrea Zaghini, 2005. "International specialization models in Latin America: the case of Argentina," Temi di discussione (Economic working papers) 558, Bank of Italy, Economic Research and International Relations Area.
  5. Zaghini, Andrea, 2003. "Trade advantages and specialisation dynamics in acceding countries," Working Paper Series 0249, European Central Bank.

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