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Medium Term Business Cycles in Developing Countries

Author Info

  • Diego A. Comin

    ()

    (Harvard Business School, Business, Government and the International Economy Unit)

  • Norman Loayza

    ()

    (Economics Research, World Bank Group)

  • Farooq Pasha

    ()

    (Boston College, Economics)

  • Luis Serven

    ()

    (World Bank - Office of the Chief Economist)

Abstract

We build a two country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country, and (ii) adjustment costs to investment flows. We calibrate the model to match the Mexico-U.S. trade and FDI flows. The model is able to explain the following stylized facts: (i) U.S. and Mexican output co-move more than consumption; (ii) U.S. shocks have a larger effect on Mexico than in the U.S.; (iii) U.S. business cycles lead over medium term fluctuations in Mexico; (iv) Mexican consumption is more volatile than output.

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File URL: http://www.hbs.edu/research/pdf/10-029.pdf
File Function: Revised version, 2010
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Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 10-029.

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Length: 54 pages
Date of creation: Oct 2009
Date of revision: Sep 2010
Handle: RePEc:hbs:wpaper:10-029
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Phone: 617.495.6000
Web page: http://www.hbs.edu/
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Keywords: Business Cycles in Developing Countries; Co-movement between Developed and Developing economies; Volatility; Extensive Margin of Trade; Product Life Cycle; FDI.;

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Find related papers by JEL classification:
  • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
  • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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  1. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," NBER Working Papers 10387, National Bureau of Economic Research, Inc.
  2. Gaston Gelos & Alberto Isgut, 1999. "Fixed Capital Adjustment; Is Latin America Different? Evidence From the Colombian and Mexican Manufacturing Sectors," IMF Working Papers 99/59, International Monetary Fund.
  3. Bernard, Andrew B. & Jensen, J Bradford & Redding, Stephen J. & Schott, Peter K., 2007. "Firms in International Trade," CEPR Discussion Papers 6277, C.E.P.R. Discussion Papers.
  4. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, vol. 75(3), pages 837-873, 05.
  5. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 865-915, August.
  6. Andrew M. Warner, 1991. "Did the debt crisis cause the investment crisis?," International Finance Discussion Papers 418, Board of Governors of the Federal Reserve System (U.S.).
  7. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1996. "Long-Run Implications of Investment-Specific Technological Change," RCER Working Papers 420, University of Rochester - Center for Economic Research (RCER).
  8. Stokey, Nancy L, 1991. "The Volume and Composition of Trade between Rich and Poor Countries," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 63-80, January.
  9. Warner, Andrew M., 1994. "Mexico's investment collapse: debt or oil?," Journal of International Money and Finance, Elsevier, vol. 13(2), pages 239-256, April.
  10. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June.
  11. Iscan, Talan B, 2000. "Financing Constraints and Investment Decline in Mexico," Manchester School, University of Manchester, vol. 68(1), pages 24-43, January.
  12. Guillermo A. Calvo, 1998. "Capital Flows and Capital-Market Crises: The Simple Economics of Sudden Stops," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 35-54, November.
  13. R. Gaston Gelos & Alberto Isgut, 2001. "Fixed Capital Adjustment: Is Latin America Different?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 717-726, November.
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Cited by:

  1. Comin, Diego & Mestieri, Marti, 2013. "Technology Diffusion:Measurement, Causes and Consequences," TSE Working Papers 13-420, Toulouse School of Economics (TSE).
  2. Correa-López Mónica & de Blas Beatriz, 2012. "International Transmission of Medium-Term Technology Cycles: Evidence from Spain as a Recipient Country," The B.E. Journal of Macroeconomics, De Gruyter, vol. 12(1), pages 1-52, November.
  3. Kadish, Peter, 2010. "Are Large Multinational Companies Undervalued? Emerging Markets Perspective," MPRA Paper 24315, University Library of Munich, Germany.
  4. repec:thk:rnotes:29 is not listed on IDEAS
  5. Queraltó, Albert, 2013. "A Model of Slow Recoveries from Financial Crises," International Finance Discussion Papers 1097, Board of Governors of the Federal Reserve System (U.S.).
  6. Ana Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," 2012 Meeting Papers 34, Society for Economic Dynamics.
  7. Asli Leblebicioglu & Kolver Hernandez, 2012. "The Transmission of US Shocks to Emerging Markets," 2012 Meeting Papers 316, Society for Economic Dynamics.
  8. Paul Levine, 2012. "Policy focus: Monetary policy in an uncertain world: probability models and the design of robust monetary rules," Indian Growth and Development Review, Emerald Group Publishing, vol. 5(1), pages 70-88, April.
  9. Choudhary, M. Ali & Hanif, M. Nadim & Khan, Sajawal & Rehman, Muhammad, 2010. "Procyclical Monetary Policy and Governance," MPRA Paper 27022, University Library of Munich, Germany.

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