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Vertical Specialization and International Business Cycle Synchronization

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  • Ananth Ramanarayanan

    (Federal Reserve Bank of Dallas)

  • Costas Arkolakis

    (Yale University and NBER)

Abstract

We explore the impact of vertical specialization - trade in goods across multiple stages of production - on the relationship between trade and international business cycle synchronization. We develop a model in which the degree of vertical specialization is endogenously determined by comparative advantage across heterogeneous goods and varies with trade barriers between countries. We show analytically that fluctuations in measured productivity in our model are not linked across countries through trade, despite the greater transmission of technology shocks implied by higher degrees of vertical specialization. In numerical simulations, we find this transmission is insufficient in generating substantial dependence of business cycle synchronization on trade intensity.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 780.

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Date of creation: 2009
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Handle: RePEc:red:sed009:780

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  1. James E. Anderson & Eric van Wincoop, 2001. "Borders, Trade and Welfare," Boston College Working Papers in Economics 508, Boston College Department of Economics.
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Cited by:
  1. 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.
  2. Scott Davis & Kevin X.D. Huang, 2010. "International real business cycles with endogenous markup variability," Globalization and Monetary Policy Institute Working Paper 60, Federal Reserve Bank of Dallas.
  3. Julian di Giovanni & Andrei A. Levchenko, 2010. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 95-124, April.
  4. Cacciatore, Matteo, 2014. "International trade and macroeconomic dynamics with labor market frictions," Journal of International Economics, Elsevier, vol. 93(1), pages 17-30.
  5. Benjamin Bridgman, 2010. "International Supply Chains and the Volatility of Trade," BEA Working Papers 0059, Bureau of Economic Analysis.
  6. Ewa Szymanik, 2012. "Business Cycles and Their International Transmission – the Introduction to the Problem," Equilibrium, Uniwersytet Mikolaja Kopernika, vol. 7, pages 55-72.
  7. Paulo Santos Monteiro & Luciana Juvenal, 2012. "Trade and Synchronization in a Multi Country Economy," 2012 Meeting Papers 59, Society for Economic Dynamics.
  8. Virgiliu Midrigan & Joe Kaboski & George Alessandria, 2012. "Trade, Inventories, and International Business Cycles," 2012 Meeting Papers 762, Society for Economic Dynamics.
  9. Pundit,Madhavi, 2013. "Comovement in business cycles and trade in intermediate goods," Working Papers 13/116, National Institute of Public Finance and Policy.
  10. Matteo Cacciatore, 2012. "International Trade and Macroeconomic Dynamics with Labor Market Frictions," 2012 Meeting Papers 875, Society for Economic Dynamics.
  11. Jacob Wibe, 2012. "The Role of Production Sharing and Trade in the Transmission of the Great Recession," University of Western Ontario, Economic Policy Research Institute Working Papers 20123, University of Western Ontario, Economic Policy Research Institute.
  12. Andrei Zlate, 2010. "Offshore production and business cycle dynamics with heterogeneous firms," International Finance Discussion Papers 995, Board of Governors of the Federal Reserve System (U.S.).
  13. Ana Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," 2012 Meeting Papers 34, Society for Economic Dynamics.

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