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Value-added trade and business cycle synchronization

Author

Listed:
  • Duval, Romain
  • Li, Nan
  • Saraf, Richa
  • Seneviratne, Dulani

Abstract

Ever since Frankel and Rose's (1998) seminal paper, the literature on trade and business cycle synchronization has relied on gross trade data, with weak results in recent papers that carefully address omitted variable bias. This paper re-examines this relationship using new value-added trade data for 63 advanced and emerging economies during 1995–2013. In a panel framework, we identify a significantly positive impact of bilateral (value-added) trade intensity on business cycle synchronization—controlling for global common shocks, country-pair heterogeneity and other covariates—that is absent when gross trade data are used. There is also some evidence that the impact of value-added trade on synchronization increases with the degree of (value-added) intra-industry trade. We provide a theoretical rationale for the role of value-added trade for synchronization using a simple international business cycle model that features cross-country input linkages in production.

Suggested Citation

  • Duval, Romain & Li, Nan & Saraf, Richa & Seneviratne, Dulani, 2016. "Value-added trade and business cycle synchronization," Journal of International Economics, Elsevier, vol. 99(C), pages 251-262.
  • Handle: RePEc:eee:inecon:v:99:y:2016:i:c:p:251-262
    DOI: 10.1016/j.jinteco.2015.11.001
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    References listed on IDEAS

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    Cited by:

    1. repec:eee:inecon:v:116:y:2019:i:c:p:74-87 is not listed on IDEAS
    2. Isai Quispe, 2017. "Fiscal Shocks and International Production Networks: An Empirical Investigation," IHEID Working Papers 20-2017, Economics Section, The Graduate Institute of International Studies.
    3. repec:eee:asieco:v:56:y:2018:i:c:p:36-47 is not listed on IDEAS
    4. Adrian Alter & Jane Dokko & Dulani Seneviratne, 2018. "House Price Synchronicity, Banking Integration, and Global Financial Conditions," IMF Working Papers 18/250, International Monetary Fund.
    5. Garnitz, Johanna & Lehmann, Robert & Wohlrabe, Klaus, 2017. "Forecasting GDP all over the World: Evidence from Comprehensive Survey Data," MPRA Paper 81772, University Library of Munich, Germany.
    6. repec:eee:energy:v:163:y:2018:i:c:p:1231-1244 is not listed on IDEAS
    7. Sasahara, Akira, 2018. "Explaining the Employment Effect of Exports: Value-Added Content Matters," MPRA Paper 89731, University Library of Munich, Germany.

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