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

By Andrei A Levchenko, Julian Di Giovanni

August 1, 2009

Preview Citation

Format: Chicago

Andrei A Levchenko, and Julian Di Giovanni. Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement, (USA: International Monetary Fund, 2009) accessed November 8, 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

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.

Subject: Business cycles, Exports, Manufacturing, Plurilateral trade, Production growth

Keywords: Business cycle, WP

Publication Details

Pages:

55
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/181
Stock No:

WPIEA2009181
ISBN:

9781451873283
ISSN:

1018-5941

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