Comparative Advantage and the Cross-Section of Business Cycles

52 Pages Posted: 27 Jan 2001 Last revised: 20 Oct 2010

See all articles by Aart Kraay

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)

Multiple version iconThere are 4 versions of this paper

Date Written: January 2001

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.

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: https://ssrn.com/abstract=257843

Aart Kraay (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

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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)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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