Trade Integration and Business Cycle Synchronization: A Reappraisal with Focus on Asia

Romain Duval, Kevin Cheng, Kum Hwa Oh and Richa Saraf

No 2014/052, IMF Working Papers from International Monetary Fund

Abstract: This paper reexamines the relationship between trade integration and business cycle synchronization (BCS) using new value-added trade data for 63 advanced and emerging economies during 1995–2012. In a panel framework, we identify a strong positive impact of trade intensity on BCS—conditional on various controls, global common shocks and country-pair heterogeneity—that is absent when gross trade data are used. That effect is bigger in crisis times, pointing to trade as an important crisis propagation mechanism. Bilateral intra-industry trade and trade specialization correlation also appear to increase co-movement, indicating that not only the intensity but also the type of trade matters. Finally, we show that dependence on Chinese final demand in value-added terms amplifies the international spillovers and synchronizing impact of growth shocks in China.

Keywords: WP; trade intensity; vertical integration; growth rate; Trade; Value Added; Business Cycle Synchronization; Spillovers; Asia; industry trade; trade specialization correlation; trade variable; dependence vis-à-vis; trade data; correlation index; Trade integration; Business cycles; Financial integration; Plurilateral trade; Exports; Asia and Pacific; Global; North America (search for similar items in EconPapers)
Pages: 46
Date: 2014-04-03
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Citations: View citations in EconPapers (58)

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