The network origins of trade comovement

Justas Dainauskas

Journal of International Economics, 2024, vol. 152, issue C

Abstract: I develop a production network model of the world economy that features Transcendental Logarithmic (a.k.a. translog) aggregators of varieties. This gives rise to variable substitution elasticities that consistent with the evidence are inversely related to the importer expenditure shares per exporter at the country-sector level. I quantify the model using data for 1970–2018 from 19 OECD economies and 30 sectors. Compared to the analogous constant elasticity version of the model, I find that the translog model amplifies international shock transmission between major trade partners and attenuates transmission elsewhere, which to an extent resolves the “trade comovement puzzle”.

Keywords: Translog aggregators; Variable elasticities of substitution; Input–output linkages; Shock transmission; Synchronisation; International Real Business Cycles (search for similar items in EconPapers)
JEL-codes: C68 D57 E32 F13 F41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001375

DOI: 10.1016/j.jinteco.2024.104010

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