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The Micro Origins of International Business-Cycle Comovement

Author

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  • Julian Di Giovanni

    (ICREA - Institució Catalana de Recerca i Estudis Avançats, CREI - Centre de Recerca en Economia Internacional - Universitat Pompeu Fabra [Barcelona], CEPR - Center for Economic Policy Research - CEPR)

  • Andrei Levchenko

    (University of Michigan [Ann Arbor] - University of Michigan System, CEPR - Center for Economic Policy Research - CEPR, National Bureau of Economic Research - National Bureau of Economic Research)

  • Isabelle Mejean

    () (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR)

Abstract

This paper investigates the role of individual firms in international business-cycle comovement using data covering the universe of French firm-level value added and international linkages over the period 1993-2007. At the micro level, trade and multinational linkages with a particular foreign country are associated with a significantly higher correlation between a firm and that foreign country. The impact of direct linkages on comovement at the micro level has significant macro implications. Without those linkages the correlation between France and foreign countries would fall by about 0.098, or one-third of the observed average correlation of 0.291 in our sample of partner countries. (JEL F14, F23, F44, F62, L14) Countries that exhibit greater bilateral trade and multinational production linkages have more correlated business cycles (Frankel and Rose 1998; Kleinert, Martin, and Toubal 2015). While the empirical literature has repeatedly confirmed the trade-comovement relationship in the data, its meaning is not well understood, either empirically or quantitatively. Taken at face value, the positive association between bilateral trade and multinational linkages and comovement is often interpreted as evidence of transmission of shocks across countries through those linkages. The empirical literature has faced two related challenges. The first is the critique by Imbs (2004) that countries that trade more with each other are similar in other ways, and thus subject to common shocks. Under an extreme version of this view, the trade linkage variable in the Frankel-Rose specification does not reflect the

Suggested Citation

  • Julian Di Giovanni & Andrei Levchenko & Isabelle Mejean, 2018. "The Micro Origins of International Business-Cycle Comovement," Post-Print hal-01936678, HAL.
  • Handle: RePEc:hal:journl:hal-01936678
    Note: View the original document on HAL open archive server: https://hal-polytechnique.archives-ouvertes.fr/hal-01936678
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    References listed on IDEAS

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    Cited by:

    1. Ruediger Bachmann & Gabriel Ehrlich & Ying Fan & Dimitrije Ruzic, 2017. "Firms and Collective Reputation: A Study of the Volkswagen Emissions Scandal," CESifo Working Paper Series 6805, CESifo Group Munich.
    2. Yukiko Saito & Makoto Nirei & Vasco Carvalho, 2014. "Supply Chain Disruptions: Evidence from Great East Japan Earthquake," 2014 Meeting Papers 595, Society for Economic Dynamics.
    3. Ernesto Pasten & Raphael Schoenle & Michael Weber, 2017. "Price Rigidity and the Origins of Aggregate Fluctuations," NBER Working Papers 23750, National Bureau of Economic Research, Inc.
    4. Bachmann, R�diger & Ehrlich, Gabriel & Ruzic, Dimitrije, 2017. "Firms and Collective Reputation: the Volkswagen Emissions Scandal as a Case Study," CEPR Discussion Papers 12504, C.E.P.R. Discussion Papers.
    5. Ernesto Pasten & Raphael S. Schoenle & Michael Weber, 2017. "Price Rigidities and the Granular Origins of Aggregate Fluctuations," CESifo Working Paper Series 6619, CESifo Group Munich.
    6. Felipe Iachan & Dejanir Silva, 2019. "Risk externalities," 2019 Meeting Papers 338, Society for Economic Dynamics.
    7. Emiliano Brancaccio & Raffaele Giammetti & Milena Lopreite & Michelangelo Puliga, 2019. "Monetary Policy, Crisis and Capital Centralization in Corporate Ownership and Control Networks: a B-Var Analysis," LEM Papers Series 2019/28, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. Kukuvec, Anja & Oberhofer, Harald, 2018. "The propagation of business sentiment within the European Union," Department of Economics Working Paper Series 6003, WU Vienna University of Economics and Business.
    9. Maria Bas & Pamela Bombarda & Sébastien Jean & Gianluca Orefice, 2018. "Firms' Exports, Volatility and Skills: Evidence from France," Working Papers 2018-20, CEPII research center.
    10. Laura Alfaro & Enrique Moral-Benito & Manuel Garcia-Santana, 2018. "On the Direct and Indirect Real Effects of Credit Supply Shocks," 2018 Meeting Papers 39, Society for Economic Dynamics.
    11. Héricourt, Jérôme & Nedoncelle, Clément, 2018. "Multi-destination firms and the impact of exchange-rate risk on trade," Journal of Comparative Economics, Elsevier, vol. 46(4), pages 1178-1193.
    12. Imbs, Jean & Pauwels, Laurent, 2019. "Fundamental Moments," Working Papers BAWP-2019-06, University of Sydney Business School, Discipline of Business Analytics.
    13. Ingvild Almås & Anders Kjelsrud, 2016. "Pro-poor Price Trends and Inequality - The Case of India," CESifo Working Paper Series 5740, CESifo Group Munich.
    14. Carvalho, Vasco M & Tahbaz-Salehi, Alireza, 2018. "Production Networks: A Primer," CEPR Discussion Papers 13421, C.E.P.R. Discussion Papers.
    15. repec:eee:ecolet:v:163:y:2018:i:c:p:95-97 is not listed on IDEAS

    More about this item

    JEL classification:

    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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