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Trade, Production Sharing and the International Transmission of Business Cycles

Author

Listed:
  • Linda Tesar
  • Ariel Burstein

    () (Economics University of Michigan)

  • Chris Kurz

Abstract

Countries that are more engaged in production sharing exhibit higher bilateral manufacturing output correlations. We use data on trade flows between US multinationals and their affiliates as well as trade between the United States and Mexican maquiladoras to measure production-sharing trade and its link with the business cycle. We then develop a quantitative model of international business cycles that generates a positive link between the extent of vertically integrated production-sharing trade and internationally synchronized business cycles. A key assumption in the model is a relatively low elasticity of substitution between home and foreign inputs in the production of the vertically integrated good.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Linda Tesar & Ariel Burstein & Chris Kurz, 2005. "Trade, Production Sharing and the International Transmission of Business Cycles," 2005 Meeting Papers 304, Society for Economic Dynamics.
  • Handle: RePEc:red:sed005:304
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    References listed on IDEAS

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    More about this item

    Keywords

    business cycle sychronization; production sharing;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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