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Trade, Production Sharing, and the International Transmission of Business Cycles

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Author Info
Ariel Burstein
Christopher Kurz
Linda Tesar

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Abstract

Countries that are more engaged in production sharing exhibit higher bilateral manufacturing output correlations. We use data on trade flows between US multinationals and their affiliates as well as trade between the United States and Mexican maquiladoras to measure production-sharing trade and its link with the business cycle. We then develop a quantitative model of international business cycles that generates a positive link between the extent of vertically integrated production-sharing trade and internationally synchronized business cycles. A key assumption in the model is a relatively low elasticity of substitution between home and foreign inputs in the production of the vertically integrated good.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13731.

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Date of creation: Jan 2008
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Handle: RePEc:nbr:nberwo:13731

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F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. M. Ayhan Kose & Kei-Mu Yi, 2005. "Can the standard international business cycle model explain the relation between trade and comovement?," Working Papers 05-3, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  2. Costas Arkolakis & Ananth Ramanarayanan, 2008. "Vertical specialization and international business cycle synchronization," Globalization and Monetary Policy Institute Working Paper 21, Federal Reserve Bank of Dallas. [Downloadable!]
  3. Jose Joaquin Lopez, 2007. "Production sharing and real business cycles in a small open economy," Globalization and Monetary Policy Institute Working Paper 05, Federal Reserve Bank of Dallas. [Downloadable!]
  4. Matthieu Bussière & Alexander Chudik & Giulia Sestieri, 2009. "Modelling Global Trade Flows - Results from a GVAR Model," Working Paper Series 1087, European Central Bank. [Downloadable!]
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