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Trade and Interdependence in International Networks

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  • Francois de Soyres

    (Toulouse School of Economics)

Abstract

This paper studies the relationship between international trade and business cycle synchronization. Using data from OECD countries, I find substantive support for the role of trade in inputs, monopolistic pricing and the extensive margin of trade in synchronizing GDP fluctuations. Then, I build a model of international trade in intermediates with heterogeneous firms and monopolistic competition. Quantitative explorations show that the model is able to replicate 85% of the empirical relationship between trade in inputs and GDP comovement, making a significant step toward solving the "trade comovement puzzle". Finally, I clarify the role of the ingredients and show that markups and extensive margin adjustments create a link between domestic productivity and foreign technological shocks.

Suggested Citation

  • Francois de Soyres, 2016. "Trade and Interdependence in International Networks," 2016 Meeting Papers 157, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:157
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    File URL: https://economicdynamics.org/meetpapers/2016/paper_157.pdf
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    References listed on IDEAS

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