Trade Integration and Business Cycle Synchronization in the EMU: the Negative Effect of New Trade Flows

Jean-Sébastien Pentecôte (), Jean-Christophe Poutineau () and Fabien Rondeau
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Jean-Christophe Poutineau: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper questions the impact of trade integration on business cycle sychroniza-tion in the EMU by distinguishing increase of existing trade flows (the intensive margin) and creation of new trade flows (the extensive margin). Using a DSGE model, we find that synchronization is weakened when new firms are allowed to export as a response to productivity gains. Consistenly with our model and using disaggregated data over 1995-2007 for the 11 founding members of the EMU, we find that trade intensity has a positive direct effect while new trade flows have a negative effect on business cycle synchronization. Furthermore, new flows play essentially an indirect role by intensifying specialization and explain 60% of the overall effect of trade intensity and specialization on synchronization.

Date: 2015-02
Note: View the original document on HAL open archive server: https://hal.science/hal-02440559
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Citations: View citations in EconPapers (8)

Published in Open Economies Review, 2015, 26 (1), pp.61-79. ⟨10.1007/s11079-014-9318-8⟩

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Related works:
Journal Article: Trade Integration and Business Cycle Synchronization in the EMU: The Negative Effect of New Trade Flows (2015)
Working Paper: Trade Integration and Business Cycle Synchronization in the EMU: the Negative Effect of New Trade Flows (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02440559

DOI: 10.1007/s11079-014-9318-8

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