Trade, Finance, Specialization, and Synchronization

April 1, 2003

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Jean Imbs. Trade, Finance, Specialization, and Synchronization, (USA: International Monetary Fund, 2003) accessed September 19, 2024

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

The paper investigates the determinants of business cycles synchronization across regions. It uses both international and intranational data to evaluate the linkages between trade in goods, trade in financial assets, specialization and business cycles synchronization using a system of simultaneous equations. The results are as follows: (i) Simultaneity is important, as both trade and financial openness have a direct and an indirect effect on cycle synchronization. (ii) A variety of alternative measures of financial integration suggest that regions with strong financial links are significantly more synchronized, though they are also more specialized. (iii) Specialization patterns have a sizable effect on business cycles, beyond their reflection of intra-industry trade, and of openness to goods and assets trade. (iv) The estimated role of trade is in line with existing models once intra-industry trade is controlled for. The results relate to a recent strand of international business cycle models with incomplete markets and transport costs, and, on the empirical side, point to an important omission in the usual criteria defining an optimal currency area, namely specialization patterns.

Subject: Balance of payments, Business cycles, Capital account, Capital flows, Economic growth, Financial integration, Financial markets, International trade, Plurilateral trade

Keywords: Africa, Business cycles, Business cycles correlation, Business cycles synchronization, Capital account, Capital flows, Correlation coefficient, Cross-state trade flow, Economic structure, Financial integration, Financial openness, Industry trade, International business cycle, Least squares, Optimal currency area, Plurilateral trade, Specialization, Trade, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/081
Stock No:

WPIEA0812003
ISBN:

9781451850383
ISSN:

1018-5941

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