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Vertical Specialization and International Business Cycle Synchronization

  • Ananth Ramanarayanan

    (Federal Reserve Bank of Dallas)

  • Costas Arkolakis

    (Yale University and NBER)

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.

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Paper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 780.

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Date of creation: 2009
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Handle: RePEc:red:sed009:780
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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  1. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," 2004 Meeting Papers 530, Society for Economic Dynamics.
  2. Costas Arkolakis & Svetlana Demidova & Peter J. Klenow & Andrés Rodríguez-Clare, 2008. "Endogenous Variety and the Gains from Trade," NBER Working Papers 13933, National Bureau of Economic Research, Inc.
  3. Kei-Mu Yi & Ayhan Kose, 2005. "Can the Standard International Business Cycle Model Explain the Relation Between Trade and Comovement?," IMF Working Papers 05/204, International Monetary Fund.
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  11. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
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  23. repec:hhs:iuiwop:430 is not listed on IDEAS
  24. Fidrmuc, Jarko, 2001. "The endogeneity of optimum currency area criteria, intraindustry trade and EMU enlargement," BOFIT Discussion Papers 8/2001, Bank of Finland, Institute for Economies in Transition.
  25. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
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