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Vertical specialization and international business cycle synchronization

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  • Costas Arkolakis
  • Ananth Ramanarayanan

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.

Suggested Citation

  • Costas Arkolakis & Ananth Ramanarayanan, 2008. "Vertical specialization and international business cycle synchronization," Globalization Institute Working Papers 21, Federal Reserve Bank of Dallas, revised 2008.
  • Handle: RePEc:fip:feddgw:21
    Note: Published as: Arkolakis, Costas and Ananth Ramanarayanan (2009), "Vertical Specialization and International Business Cycle Synchronization," The Scandinavian Journal of Economics 111 (4): 655-680.
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    References listed on IDEAS

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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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