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Vertical specialization and international business cycle synchronization

Costas Arkolakis () and Ananth Ramanarayanan ()

No 21, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: We explore the impact of vertical specialization—trade in goods across multiple stages of production—on the relationship between trade and international business cycle synchronization. We develop a model in which the degree of vertical specialization is endogenously determined by comparative advantage across heterogeneous goods and varies with trade barriers between countries. We show analytically that fluctuations in measured productivity in our model are not linked across countries through trade, despite the greater transmission of technology shocks implied by higher degrees of vertical specialization. In numerical simulations, we find this transmission is insufficient in generating substantial dependence of business cycle synchronization on trade intensity.

JEL-codes: E32 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-dge, nep-int, nep-mac and nep-opm
Date: 2008
Note: Published as: Arkolakis, Costas and Ananth Ramanarayanan (2009), "Vertical Specialization and International Business Cycle Synchronization," The Scandinavian Journal of Economics 111 (4): 655-680.
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