Imported inputs and countercyclicality of net exports in emerging markets

S. Tolga Tiryaki ()

No 1020, 2009 Meeting Papers from Society for Economic Dynamics

Abstract: Using a single-sector small open economy real business cycle model with variable capital utilization, imported inputs, and working capital constraint, I show that strong countercyclicality of net exports observed in emerging market economies is to a large extent due to the technology in which production relies on imported inputs. The easier domestic inputs can be substituted for imported inputs, the stronger is the expenditure switching effect of adverse shocks, thereby causing smaller correlation between net exports and output. The model also performs reasonably well in terms of matching certain moments of key macroeconomic variables.

Date: 2009
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