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

47 Pages Posted: 18 Apr 2014

See all articles by Romain Duval

Romain Duval

International Monetary Fund (IMF)

Kevin C. Cheng

International Monetary Fund (IMF)

Kum Hwa Oh

University of Washington - Department of Economics

Richa Saraf

SUNY University at Albany

Dulani Seneviratne

International Monetary Fund (IMF)

Date Written: April 2014

Abstract

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.

Keywords: Trade integration, Asia, China, Business cycles, Economic growth, Spillovers, Developed countries, Emerging markets, Cross country analysis, Value Added, Business Cycle Synchronization, Asia., trade intensity, industry trade, trade data, impact of trade, bilateral trade, vertical integration, trade variables, supply chain, gross exports, impact of trade integration, output growth, intermediate goods, global shocks, trade partners, factor analysis, partner countries, import tariff, intermediate imports, trade dependence, international trade, average import tariff, balance of payments, intermediate inputs, regional trade, idiosyncratic factors, world economy, partner country, exchange rate pol

JEL Classification: E32, F42

Suggested Citation

Duval, Romain and Cheng, Kevin C. and Oh, Kum Hwa and Saraf, Richa and Seneviratne, Dulani, Trade Integration and Business Cycle Synchronization: A Reappraisal with Focus on Asia (April 2014). IMF Working Paper No. 14/52, Available at SSRN: https://ssrn.com/abstract=2426561

Romain Duval

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kevin C. Cheng

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kum Hwa Oh

University of Washington - Department of Economics ( email )

Box 353330
Seattle, WA 98195-3330
United States

Richa Saraf

SUNY University at Albany ( email )

1400 Washington Avenue
Building, Room 109
Albany, NY 12222
United States

Dulani Seneviratne

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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