Faraway, so close! International transmission in the medium-term cycle of advanced economies

Mónica Correa-López and Beatriz de Blas

Journal of International Economics, 2021, vol. 132, issue C

Abstract: Large US firms, by diffusing embodied technology through trade in intermediates, appear to drive Europe's output over the medium term. We develop a two-country model of endogenous growth in varieties, cross-country firm heterogeneity and trade to match this evidence. A US TFP slowdown generates a pronounced recession in Europe, while a negative investment-specific shock also imparts a protracted recession in the US since GDP and firm productivity stay below trend beyond a decade. Heterogeneous firms, with endogenously changing productivity cut-offs, and the responses of innovators and adopters determine medium-term adjustment, as import switching processes unfold.

Keywords: Medium-term business cycles; International trade; Embodied growth; Heterogeneous firms (search for similar items in EconPapers)
JEL-codes: E32 F44 L11 O33 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199621000787
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:132:y:2021:i:c:s0022199621000787

DOI: 10.1016/j.jinteco.2021.103498

Access Statistics for this article

Journal of International Economics is currently edited by Martin Uribe and Costas Arkolakis

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().