Medium Term Business Cycles in Developing Countries
Diego A. Comin
Harvard Business School - Business, Government and the International Economy Unit
World Bank - Research Department
World Bank - Office of the Chief Economist
September 13, 2010
Harvard Business School BGIE Unit Working Paper No. 10-029
We build a two country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country, and (ii) adjustment costs to investment flows. We calibrate the model to match the Mexico-U.S. trade and FDI flows. The model is able to explain the following stylized facts: (i) U.S. and Mexican output co-move more than consumption; (ii) U.S. shocks have a larger effect on Mexico than in the U.S.; (iii) U.S. business cycles lead over medium term fluctuations in Mexico; (iv) Mexican consumption is more volatile than output.
Number of Pages in PDF File: 54
Keywords: Business Cycles in Developing Countries, Co-movement between Developed and Developing economies, Volatility, Extensive Margin of Trade, Product Life Cycle, FDI
JEL Classification: E3, O3working papers series
Date posted: October 16, 2009 ; Last revised: September 15, 2010
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