Trade Integration and Business Cycle Synchronization

A Reappraisal with Focus on Asia

• Author(s): Mr.Romain A Duval, Mr.Kevin C. Cheng, Kum Hwa Oh, Richa Saraf, MissDulani Seneviratne,
• Publisher: International Monetary Fund
• Pages: 46
• ISBN_10: 1475522460
  ISBN_13: 9781475522464
  
• Language: en
• Categories: Business & Economics / Exports & Imports , Business & Economics / Economics / Macroeconomics , Business & Economics / Finance / General ,

Description:... 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.