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

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.
Publication date: April 2014
ISBN: 9781475522464
$18.00
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Economics- Macroeconomics , Economics / General , International - Economics , Trade , Value Added , Business Cycle Synchronization , Spillovers , Asia

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