Medium Term Business Cycles in Developing Countries

54 Pages Posted: 16 Oct 2009 Last revised: 15 Sep 2010

See all articles by Diego A. Comin

Diego A. Comin

Harvard Business School - Business, Government and the International Economy Unit

Norman Loayza

World Bank - Research Department

Farooq Pasha

Boston College

Luis Servén

World Bank - Development Research Group (DECRG)

Multiple version iconThere are 3 versions of this paper

Date Written: September 13, 2010

Abstract

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.

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, O3

Suggested Citation

Comin, Diego A. and Loayza, Norman and Pasha, Farooq and Servén, Luis, Medium Term Business Cycles in Developing Countries (September 13, 2010). Harvard Business School BGIE Unit Working Paper No. 10-029. Available at SSRN: https://ssrn.com/abstract=1488755 or http://dx.doi.org/10.2139/ssrn.1488755

Diego A. Comin (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge
United States

Norman Loayza

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Farooq Pasha

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Luis Servén

World Bank - Development Research Group (DECRG)

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States

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