Trade Integration and Business Cycle Synchronization: A Reappraisal with Focus on Asia

By Romain A Duval, Kevin C Cheng, Kum Hwa Oh, Richa Saraf

April 3, 2014

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Format: Chicago

Romain A Duval, Kevin C Cheng, Kum Hwa Oh, and Richa Saraf. Trade Integration and Business Cycle Synchronization: A Reappraisal with Focus on Asia, (USA: International Monetary Fund, 2014) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper reexamines the relationship between trade integration and business cycle synchronization (BCS) using new value-added trade data for 63 advanced and emerging economies during 1995–2012. In a panel framework, we identify a strong positive impact of trade intensity on BCS—conditional on various controls, global common shocks and country-pair heterogeneity—that is absent when gross trade data are used. That effect is bigger in crisis times, pointing to trade as an important crisis propagation mechanism. Bilateral intra-industry trade and trade specialization correlation also appear to increase co-movement, indicating that not only the intensity but also the type of trade matters. Finally, we show that dependence on Chinese final demand in value-added terms amplifies the international spillovers and synchronizing impact of growth shocks in China.

Subject: Business cycles, Economic growth, Economic integration, Exports, Financial integration, Financial markets, International trade, Plurilateral trade, Trade integration

Keywords: Asia, Asia and Pacific, Business Cycle Synchronization, Business cycles, Correlation index, Dependence vis-à-vis, Exports, Financial integration, Global, Growth rate, Industry trade, North America, Plurilateral trade, Spillovers, Trade, Trade data, Trade integration, Trade intensity, Trade specialization correlation, Trade variable, Value Added, Vertical integration, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/052
Stock No:

WPIEA2014052
ISBN:

9781475522464
ISSN:

1018-5941

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