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Value Added and Productivity Linkages Across Countries

François de Soyres

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: What is the relationship between international trade and business cycle synchronization? Using data from OECD countries, I find that trade in intermediate inputs plays a significant role in synchronizing GDP fluctuations across countries while trade in final goods is found insignificant. Motivated by this new fact, I build a model of international trade in intermediates that is able to replicate more than 70% of the empirical trade-comovement slope, making a significant step toward solving the “Trade Comovement Puzzle”. The model relies on two key assumptions: (i) price distortions due to monopolistic competition and (ii) fluctuations in the mass of firms serving each country. The combination of those ingredients creates a link between domestic productivity and foreign shocks through trade linkages. Finally, I provide evidence for the importance of those elements in the link between foreign shocks and domestic GDP and test other predictions of the model.

Keywords: International Trade; International Business Cycle Comovement; Networks; Input- Output Linkages (search for similar items in EconPapers)
JEL-codes: F12 F17 F4 F62 L22 (search for similar items in EconPapers)
Pages: 60
Date: 2016-11-24
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