Trade Integration and Business Cycle Synchronization: A Reappraisal with Focus on Asia
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Summary:
This paper reexamines the relationship between trade integration and business cycle synchronization (BCS) using new value-added trade data for 63 advanced and emerging economies during 1995–2012. In a panel framework, we identify a strong positive impact of trade intensity on BCS—conditional on various controls, global common shocks and country-pair heterogeneity—that is absent when gross trade data are used. That effect is bigger in crisis times, pointing to trade as an important crisis propagation mechanism. Bilateral intra-industry trade and trade specialization correlation also appear to increase co-movement, indicating that not only the intensity but also the type of trade matters. Finally, we show that dependence on Chinese final demand in value-added terms amplifies the international spillovers and synchronizing impact of growth shocks in China.
Series:
Working Paper No. 2014/052
Subject:
Business cycles Economic growth Economic integration Exports Financial integration Financial markets International trade Plurilateral trade Trade integration
English
Publication Date:
April 3, 2014
ISBN/ISSN:
9781475522464/1018-5941
Stock No:
WPIEA2014052
Pages:
46
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