This paper examines whether increasing trade intensities among East Asian countries have led to a synchronization of business cycles. It extends the work of Shin and Wang (2004) in two ways: by improving the specification of their business cycle correlation equation and by extending the sample to cover the post-crisis period. Some key criteria in the optimal currency area literature are that countries should join a currency union if they have closer international trade links and more symmetric business cycles. However, both criteria are endogenous. Frankel and Rose (1998) find that trade intensity increases cycle correlation among industrial countries. business cycle synchronization, with an increase of one standard deviation in bilateral trade intensity raising the output correlation from 0.05 to 0.09 for all country pairs; (ii) countries with more asymmetric structures of production exhibit We gather annual information for 147 countries for 1960-99 (33,676 country pairs) and find: (i) countries with higher bilateral trade exhibit higher business cycle synchronization, with an increase of one standard deviation in bilateral trade intensity raising the output correlation from 0. 05 to 0. 09 for all country pairs; (ii) countries with more asymmetric structures of production exhibit a smaller business cycle correlation; (iii) the impact of trade integration on business cycles is
pattern of business cycles synchronization in behaviour (dynamics). Apart from stylised indicator. GDP, we use export to consider trade intensity and.
4The literature on business cycles and trade has established a link between trade intensity and business cycle synchronization. Frankel and Rose discovered 8 Mar 2016 While cycles are unambiguously synchronised between trade partners, 2013) – we regress business cycle synchronisation on the intensity of 11 Feb 2015 Calderón, C., Chong, A. and E. Stein ( 2002) “ Trade Intensity and Business Cycle Synchronization: Are Developing Countries any Different? 2015 AESS Publications. All Rights Reserved. Keywords: Business cycles synchronization, Trade intensity, Specialization, Financial integration, Mediterranean. of the slope between trade and business cycle synchronization, leading to what total GDP.10 In a similar way, we disentangle trade intensity in inputs and final relationship between business cycle synchronization and trade. (Imbs, 2004) Evidence of the positive relationship between trade intensity and business cycle.
The literature on business cycles stresses the roles of both international trade ( 2008) re-examine the link between international trade intensity and business cycle cycle synchronisation in these countries is associated with capital market.
of the slope between trade and business cycle synchronization, leading to what total GDP.10 In a similar way, we disentangle trade intensity in inputs and final
3 for Central America and quantify the relationship between trade intensity, trade structure and business cycle synchronization and discuss how trade integration
4The literature on business cycles and trade has established a link between trade intensity and business cycle synchronization. Frankel and Rose discovered
relationship between business cycle synchronization and trade. (Imbs, 2004) Evidence of the positive relationship between trade intensity and business cycle.
We are not allowed to display external PDFs yet. You will be redirected to the full text document in the repository in a few seconds, if not click here. On average, higher trade integration leads to higher business cycle synchronization. This result is robust to changes in the measure of bilateral trade intensity, to the detrending techniques used to compute cyclical output, or the estimation method (OLS or IV). The paper finds that for European countries, the positive association between trade and business cycle co-movements is more evidently observed and the role of intra-industry trade increasing the business cycle synchronization is also more clearly revealed by value-added trade data. First, intra-industry trade rather than inter-industry trade is found to be the major factor in affecting business cycle synchronization in both East Asia and Europe. Second, the effect of intra-industry trade on business cycle synchronization for East Asia is found to be higher than the one for Europe.
The paper finds that intra-industry trade, rather than inter-industry trade, is the major factor in explaining business cycle co-movements in both regions. The paper also supports the hypothesis that the relationship between trade intensity and output co-movement is stronger in East Asia than in Europe. trade intensity has a sizeable positive, statistically signiﬁcant, and robust impact on synchronization,as in Frankel and Rose's seminal papers. There is also some evidence that the nature of trade Table 5.1 Business cycle synchronization and trade: 4 period models for robustness. OLS IV = tariff IV = PTA OLS IV = tariff IV = PTA IV = tariff