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The Micro Origins of International Business Cycle Comovement

Listed author(s):
  • Julian Di Giovanni, Andrei A. Levchenko, Isabelle Méjean

    ()

    (Universitat Pompeu Fabra, Barcelona GSE, CREI, CEPR)

This paper investigates the role of individual firms in international business cycle comovement using data covering the universe of French firm-level value added, bilateral imports and exports, and cross-border ownership over the period 1993-2007. At the micro level, controlling for firm and country effects, trade in goods with a particular foreign country is associated with a significantly higher correlation between a firm and that foreign country. In addition, foreign multinational a liates operating in France are significantly more correlated with the source economy. The impact of direct trade and multinational linkages on comovement at the micro level has significant macro implications. Because internationally connected firms are systematically larger than noninternationally connected firms, the firms directly linked to foreign countries represent only 8% of all firms, but 56% of all value added, and account for 75% of the observed aggregate comovement. Without those linkages the correlation between France and foreign countries would fall by about 0.091, or one-third of the observed average business cycle correlation of 0.29 in our sample of partner countries. These results are evidence of transmission of business cycle shocks through direct trade and multinational ownership linkages at the firm level.

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Paper provided by Centre de Recherche en Economie et Statistique in its series Working Papers with number 2016-16.

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Length: 86
Date of creation: Dec 2015
Handle: RePEc:crs:wpaper:2016-16
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  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. Javier Cravino & Andrei A. Levchenko, 2015. "Multinational Firms and International Business Cycle Transmission," Working Papers 643, Research Seminar in International Economics, University of Michigan.
  3. Nitya Pandalai Nayar & Aaron Flaaen & Christoph Boehm, 2015. "Input Linkages and the Transmission of Shocks: Firm-Level Evidence from the 2011 Tohoku Earthquake," 2015 Meeting Papers 383, Society for Economic Dynamics.
  4. repec:bof:bofrdp:urn:nbn:fi:bof-201512101464 is not listed on IDEAS
  5. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 289-336.
  6. Blonigen, Bruce A. & Piger, Jeremy & Sly, Nicholas, 2014. "Comovement in GDP trends and cycles among trading partners," Journal of International Economics, Elsevier, vol. 94(2), pages 239-247.
  7. Daron Acemoglu & Ufuk Akcigit & William Kerr, 2016. "Networks and the Macroeconomy: An Empirical Exploration," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 273-335.
  8. Carvalho, Vasco M & Grassi, Basile, 2015. "Large Firm Dynamics and the Business Cycle," CEPR Discussion Papers 10587, C.E.P.R. Discussion Papers.
  9. Ng, Eric C.Y., 2010. "Production fragmentation and business-cycle comovement," Journal of International Economics, Elsevier, vol. 82(1), pages 1-14, September.
  10. Enghin Atalay, 2014. "How Important Are Sectoral Shocks," Working Papers 14-31, Center for Economic Studies, U.S. Census Bureau.
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