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Comparative Advantage and the Cross-Section of Business Cycles


Aart Kraay


World Bank - Development Research Group (DECRG)

Jaume Ventura


Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

January 2001

NBER Working Paper No. w8104

Abstract:     
Business cycles are both less volatile and more synchronized with the world cycle in rich countries than in poor ones. We develop two alternative explanations based on the idea that comparative advantage causes rich countries to specialize in industries that use new technologies operated by skilled workers, while poor countries specialize in industries that use traditional technologies operated by unskilled workers. Since new technologies are difficult to imitate, the industries of rich countries enjoy more market power and face more inelastic product demands than those of poor countries. Since skilled workers are less likely to exit employment as a result of changes in economic conditions, industries in rich countries face more inelastic labour supplies than those of poor countries. We show that either asymmetry in industry characteristics can generate cross-country differences in business cycles that resemble those we observe in the data.

Number of Pages in PDF File: 52

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Date posted: January 27, 2001  

Suggested Citation

Kraay, Aart and Ventura, Jaume, Comparative Advantage and the Cross-Section of Business Cycles (January 2001). NBER Working Paper No. w8104. Available at SSRN: http://ssrn.com/abstract=257843

Contact Information

Aart Kraay (Contact Author)
World Bank - Development Research Group (DECRG) ( email )
1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-5756 (Phone)
202-522-3518 (Fax)
HOME PAGE: http://econ.worldbank.org/staff/akraay
Jaume Ventura
Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )
Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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