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Co-movements Of Business Cycles In The Maghreb: Does Trade Matter?

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  • Belhadj, Aam
  • Eggoh, Jude

Abstract

Over the past two decades, the Maghreb Countries have initiated a liberalization process characterized by increasing trade flows and they have strengthened economic and financial linkages between their economies. In this paper, we demonstrate how co-movements of outputs would respond to this integration process. The nature of this relationship seems to be important for these countries because the decision to join an economic and monetary union would depend on how the union affects trade and co-movements. To this end, we estimate a panel model describing the effect of trade intensity on business cycles correlation over the period 1980-2005. Thereafter, to check the robustness of the results, we add many control variables commonly described in the literature. We use three estimation techniques: pooled OLS, fixed vs. random effects as well as 2SLS estimations. Our main results suggest that while trade intensity may help to harmonize business cycles in Maghreb countries, the magnitude of this harmonization is lower than for industrial countries. Moreover, intra-industry trade causes a reverse –counterintuitive- effect. Many lessons are thereby learned.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 35778.

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Date of creation: 30 Jul 2010
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Handle: RePEc:pra:mprapa:35778

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Keywords: Business Cycles; Trade Intensity; Intra-Industry Trade; Maghreb;

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  1. De Grauwe, Paul & Mongelli, Francesco Paolo, 2005. "Endogeneities of optimum currency areas: what brings countries sharing a single currency closer together?," Working Paper Series 0468, European Central Bank.
  2. Stockman, Alan C., 1988. "Sectoral and national aggregate disturbances to industrial output in seven European countries," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 387-409.
  3. Belhadj, Aam & bangake, Chrysost & Jedlane, NABIL, 2007. "Toward Maghreb monetary unification:what does the theory and history tell us?," MPRA Paper 40375, University Library of Munich, Germany.
  4. George S. Tavlas, 2009. "Optimum-Currency-Area Paradoxes," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 536-551, 08.
  5. Zsolt Darvas & György Szapáry, 2006. "Business Cycle Synchronization in the Enlarged EU," Working Papers 0604, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  6. Jarko Fidrmuc, 2004. "The Endogeneity of the Optimum Currency Area Criteria, Intra-industry Trade, and EMU Enlargement," Contemporary Economic Policy, Western Economic Association International, vol. 22(1), pages 1-12, 01.
  7. Mongelli, Francesco Paolo, 2002. "ìNew" Views on the Optimum Currency Area Theory: What is EMU Telling US?," Royal Economic Society Annual Conference 2002 140, Royal Economic Society.
  8. Lionel Fontagné & Michael Freudenberg & Guillaume Gaulier, 2006. "A Systematic Decomposition of World Trade into Horizontal and Vertical IIT," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 142(3), pages 459-475, October.
  9. Ben Hammouda, Hakim & Oulmane, Nassim & Bchir, Hédi & Sadni Jallab, Mustapha, 2006. "The Cost of non-Maghreb: Achieving the Gains from Economic Integration," MPRA Paper 13293, University Library of Munich, Germany.
  10. Michael Freudenberg & Lionel Fontagné, 1999. "Marché unique et développement des échanges," Économie et Statistique, Programme National Persée, vol. 326(1), pages 31-52.
  11. Peridy, Nicolas, 2005. "The trade effects of the Euro-Mediterranean partnership: what are the lessons for ASEAN countries?," Journal of Asian Economics, Elsevier, vol. 16(1), pages 125-139, February.
  12. Boone, Laurence & Maurel, Mathilde, 1999. "An Optimal Currency Area Perspective of the EU Enlargement to the CEECs," CEPR Discussion Papers 2119, C.E.P.R. Discussion Papers.
  13. Fidrmuc, Jarko, 2001. "The Endogeneity of optimum currency area criteria, intraindustry trade and EMU enlargement," BOFIT Discussion Papers 8/2001, Bank of Finland, Institute for Economies in Transition.
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