The Micro Origins of International Business Cycle Comovement

44 Pages Posted: 20 Jan 2016

See all articles by Julian di Giovanni

Julian di Giovanni

Federal Reserve Banks - Federal Reserve Bank of New York; Universitat Pompeu Fabra - Department of Economics and Business; Barcelona Graduate School of Economics (Barcelona GSE); CREI and Universitat Pompeu Fabra; Centre for Economic Policy Research (CEPR)

Andrei A. Levchenko

University of Michigan - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Isabelle Mejean

Ecole Polytechnique, Paris

Date Written: January 2016

Abstract

This paper investigates the role of individual firms in international business cycle comovement using data covering the universe of French firm-level value added, bilateral imports and exports, and cross-border ownership over the period 1993-2007. At the micro level, controlling for firm and country effects, trade in goods with a particular foreign country is associated with a significantly higher correlation between a firm and that foreign country. In addition, foreign multinational affiliates operating in France are significantly more correlated with the source economy. The impact of direct trade and multinational linkages on comovement at the micro level has significant macro implications. Because internationally connected firms are systematically larger than non- internationally connected firms, the firms directly linked to foreign countries represent only 8% of all firms, but 56% of all value added, and account for 75% of the observed aggregate comovement. Without those linkages the correlation between France and foreign countries would fall by about 0.091, or one-third of the observed average business cycle correlation of 0.29 in our sample of partner countries. These results are evidence of transmission of business cycle shocks through direct trade and multinational ownership linkages at the firm level.

Suggested Citation

di Giovanni, Julian and Levchenko, Andrei A. and Mejean, Isabelle, The Micro Origins of International Business Cycle Comovement (January 2016). NBER Working Paper No. w21885, Available at SSRN: https://ssrn.com/abstract=2717296

Julian Di Giovanni (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

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Universitat Pompeu Fabra - Department of Economics and Business ( email )

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Barcelona Graduate School of Economics (Barcelona GSE) ( email )

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CREI and Universitat Pompeu Fabra ( email )

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Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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Andrei A. Levchenko

University of Michigan - Department of Economics ( email )

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Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://alevchenko.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Isabelle Mejean

Ecole Polytechnique, Paris ( email )

1 rue Descartes
Paris, 75005
France

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