Trade in Commodities and Emerging Market Business Cycles
Fernando Leibovici () and
David Kohn ()
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Hakon Tretvoll: BI Norwegian Business School
No 743, 2017 Meeting Papers from Society for Economic Dynamics
This paper studies the role of the sectoral composition of production and trade in accounting for emerging market business cycles. We document that in emerging economies the production of commodities is a larger share of total production than in developed ones, and that they run larger sectoral and aggregate trade imbalances. We set up a small open economy model that produces commodities and manufactures and trades them with the rest of the world. We contrast the implied business cycle dynamics of two economies that are respectively calibrated to match the observed differences between developed and emerging countries. In the model, shocks to the relative price of commodities lead to much larger fluctuations in output, net exports and TFP in the emerging economy, accounting for the higher volatility that we observe in the data. A key driver of these effects is that emerging economies consume relatively more manufactures than they produce.
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Working Paper: Trade in Commodities and Business Cycle Volatility (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:743
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