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The Micro Origins of International Business Cycle Comovement

Listed author(s):
  • Julian di Giovanni

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

  • Andrei A. Levchenko

    (University of Michigan, NBER, and CEPR)

  • Isabelle Méjean

    (Ecole Polytechnique and 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 affliates 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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File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r649.pdf
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Paper provided by Research Seminar in International Economics, University of Michigan in its series Working Papers with number 649.

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Length: 42 pages
Date of creation: Dec 2015
Handle: RePEc:mie:wpaper:649
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  1. Vasco Carvalho & Basile Grassi, 2015. "Large Firm Dynamics and the Business Cycle," Working Papers 824, Barcelona Graduate School of Economics.
  2. Ana Santacreu, 2012. "The Trade Comovement Puzzle and the Margins of International Trade," 2012 Meeting Papers 34, Society for Economic Dynamics.
  3. Javier Cravino & Andrei A. Levchenko, 2015. "Multinational Firms and International Business Cycle Transmission," Working Papers 643, Research Seminar in International Economics, University of Michigan.
  4. Acemoglu, Daron & Akcigit, Ufuk & Kerr, William R., 2015. "Networks and the macroeconomy: an empirical exploration," Research Discussion Papers 25/2015, Bank of Finland.
  5. 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.
  6. Enghin Atalay, 2014. "How Important Are Sectoral Shocks," Working Papers 14-31, Center for Economic Studies, U.S. Census Bureau.
  7. Ng, Eric C.Y., 2010. "Production fragmentation and business-cycle comovement," Journal of International Economics, Elsevier, vol. 82(1), pages 1-14, September.
  8. repec:bof:bofrdp:urn:nbn:fi:bof-201512101464 is not listed on IDEAS
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