The Heterogeneous Effects of Global and National Business Cycles on Employment in US States and Metropolitan Areas

Alexander Chudik, Janet Koech and Mark Wynne

Oxford Bulletin of Economics and Statistics, 2021, vol. 83, issue 2, 495-517

Abstract: The growth of globalization in recent decades has increased the importance of external factors as drivers of the business cycle in many countries. Globalization affects countries not just at the macro level but at the level of states and metro areas as well. This paper isolates the relative importance of global, national and region‐specific shocks as drivers of the business cycle in individual US states and metro areas. We find about 2/3 and 1/2 of the employment fluctuations in US states and metro areas, respectively, are explained by the global and national shocks lumped together. The split between the importance of the global and national shocks is about 50:50, based on the standard identification scheme in the literature. Next, we document substantial regional heterogeneity in the sensitivity of states and metro areas to global shocks, and show that direct trade linkages are not the only channel through which the global business cycle impacts regional economies. In particular, indicators of size and industry composition dwarf the explanatory power of trade linkages in explaining the regional differences.

Date: 2021
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https://doi.org/10.1111/obes.12402

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Working Paper: The Heterogeneous Effects of Global and National Business Cycles on Employment in U.S. States and Metropolitan Areas (2018)
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