Inter-industry trade and business cycle dynamics

Wolfgang Lechthaler and Mariya Mileva

No 2041, Kiel Working Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: Motivated by the increased importance of trade between industrialized and less-developed countries, we build a DSGE model featuring comparative advantage and inter-industry trade to analyze business cycle dynamics of industrialized countries. We show that productivity shocks lead to shifts in the relative demand of exporting and import-competing sectors, implying an important role for the mobility of workers across sectors. If workers are very mobile, then the aggregate implications of the two-sector model are similar to a one-sector model. If workers are very immobile, then the two-sector model features smaller responses in GDP to domestic shocks but larger responses to foreign shocks, implying larger comovement of GDP across countries.

Keywords: international business cycles; inter-industry trade; comparative advantage; wage inequality (search for similar items in EconPapers)
JEL-codes: E20 E25 F41 F44 F62 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-bec, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkwp:2041

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