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Vertical Specialization and International Business Cycle Synchronization

  • Costas Arkolakis
  • Ananth Ramanarayanan

We explore the impact of vertical specialization-trade in goods across multiple stages of production-on the relationship between trade and business cycle synchronization across countries. We develop an international business cycle model in which the degree of vertical specialization varies with trade barriers. With perfect competition, we show analytically that fluctuations in measured total factor productivity are not linked across countries through trade. In numerical simulations, we find little dependence of business cycle synchronization on trade intensity. An extension of the model to allow for imperfect competition has the potential to resolve these shortcomings. Copyright The editors of the "Scandinavian Journal of Economics" 2009 .

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 111 (2009)
Issue (Month): 4 (December)
Pages: 655-680

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Handle: RePEc:bla:scandj:v:111:y:2009:i:4:p:655-680
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