Trade Integration and Business Cycle Synchronization: A Reappraisal with Focus on Asia

Author/Editor: Romain A Duval ; Kevin C. Cheng ; Kum Hwa Oh ; Richa Saraf ; Dulani Seneviratne
Publication Date: April 03, 2014
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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: 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. 14/52
Subject(s): Trade integration | Asia | China | Business cycles | Economic growth | Spillovers | Developed countries | Emerging markets | Cross country analysis

Publication Date: April 03, 2014
ISBN/ISSN: 9781475522464/1018-5941 Format: Paper
Stock No: WPIEA2014052 Pages: 46
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