Putting the Parts Together : Trade, Vertical Linkages, and Business Cycle Comovement

Author/Editor:

Andrei A Levchenko ; Julian Di Giovanni

Publication Date:

August 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Countries that trade more with each other exhibit higher business cycle correlation. This paper examines the mechanisms underlying this relationship using a large cross-country industry-level panel dataset of manufacturing production and trade. We show that sector pairs that experience more bilateral trade exhibit stronger comovement. Vertical linkages in production are an important explanation behind this effect: bilateral international trade increases comovement significantly more in cross-border industry pairs that use each other as intermediate inputs. Our estimates imply that these vertical production linkages account for some 30% of the total impact of bilateral trade on the business cycle correlation.

Series:

Working Paper No. 09/181

Subject:

Frequency:

Biannually

English

Publication Date:

August 1, 2009

ISBN/ISSN:

9781451873283/1018-5941

Stock No:

WPIEA2009181

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

55

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