Vertical Specialization and International Business Cycle Synchronization

Costas Arkolakis () and Ananth Ramanarayanan ()

Scandinavian Journal of Economics, 2009, vol. 111, issue 4, pages 655-680

Abstract: We explore the impact of vertical specialization-trade in goods across multiple stages of production-on the relationship between trade and business cycle synchronization across countries. We develop an international business cycle model in which the degree of vertical specialization varies with trade barriers. With perfect competition, we show analytically that fluctuations in measured total factor productivity are not linked across countries through trade. In numerical simulations, we find little dependence of business cycle synchronization on trade intensity. An extension of the model to allow for imperfect competition has the potential to resolve these shortcomings. Copyright The editors of the "Scandinavian Journal of Economics" 2009 .

Date: 2009
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Working Paper: Vertical specialization and international business cycle synchronization (2008)
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