Value Added and Productivity Linkages Across Countries
François de Soyres
Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)
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)
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Working Paper: Value Added and Productivity Linkages Across Countries (2019)
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