Value-added trade and business cycle synchronization

Akcigit, Ufuk; Li, Nan; Saraf, Richa; Seneviratne, Dulani

doi:10.1016/j.jinteco.2015.11.001

Cited by 84 publications

(88 citation statements)

References 22 publications

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“…This result is no surprise, as the papers that carefully address omitted variable bias by, for example including country-pair fixed effects and country-year fixed effects as our paper does, have found an insignificant effect of trade intensity when using gross trade data (Abiad et al, 2013;Calderon et al, 2007;Kalemli-Ozcan et al, 2013). Duval et al (2016) identified a significantly positive effect of bilateral value-added trade intensity on business cycle synchronisation and provided a theoretical rationale for the role of value-added trade in a static version of the international business cycle model with cross-country input-output linkages in production from Johnson (2014). We followed Duval et al (2016) and replaced gross trade intensity with value-added trade intensity in columns (2)-(7).…”

Section: Baseline Resultssupporting

confidence: 55%

“…However, the findings of the effect of financial integration are mixed (see the detailed discussion in the next section). This paper is also closely related to papers about the impact of value-added trade on synchronisation (Duval et al, 2016), which have found a significantly positive impact of bilateral trade intensity in value-added terms on BCS.…”

mentioning

confidence: 61%

“…Duval et al (2016) identified a significantly positive effect of bilateral value-added trade intensity on business cycle synchronisation and provided a theoretical rationale for the role of value-added trade in a static version of the international business cycle model with cross-country input-output linkages in production from Johnson (2014). We followed Duval et al (2016) and replaced gross trade intensity with value-added trade intensity in columns (2)-(7). Then, we added two novel determinants of BCS proposed in our paper: exchange rate volatility and external value-added trade intensity.…”

Section: Baseline Resultsmentioning

confidence: 99%

“…His model reveals another channel through which trade transmits shocks across borders: a productivity shock in one country affects another country's output not only through direct trade between the country pairs but also indirectly via a "third-country effect" propagated in intermediate goods trade. Duval et al (2016) empirically showed that value-added trade, not gross trade, has a statistically and economically significant effect on BCS between countries using data from the OECD TIVA database.…”

Section: Determinants Of Business Cycle Synchronisationmentioning

confidence: 99%

See 3 more Smart Citations

Business cycle synchronisation in East Asia: The role of value‐added trade

Jiang

Zhang

2018

World Economy

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We empirically investigate the relationship between business cycle synchronisation and the role of value‐added trade focusing on a panel of 12 Asian countries from 1995 to 2011. In addition, we propose the inclusion of two novel determinants, for example external value‐added trade intensity and exchange rate volatility and also saturate our empirical model with other common determinants found in the literature. Our findings first confirm that value‐added trade intensity, rather than gross trade intensity, has a sizable, positive and statistically significant impact on synchronisation among East Asian countries. Second, the exchange rate volatility has a significant negative effect on the business cycle synchronisation, which verifies that the exchange rate volatility is another important determinant of business cycle synchronisation. Our findings have important implications for the monetary cooperation in the region: strengthening trade linkage could reduce the costs of monetary cooperation by increasing the incidence of symmetric shocks.

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Section: Baseline Resultssupporting

confidence: 55%

mentioning

confidence: 61%

Section: Baseline Resultsmentioning

confidence: 99%

Section: Determinants Of Business Cycle Synchronisationmentioning

confidence: 99%

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Business cycle synchronisation in East Asia: The role of value‐added trade

Jiang

Zhang

2018

World Economy

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“…In 18 OECD countries, they show the link between finance and synchronization becomes negative once country-pair specific intercepts are accounted for. The results are confirmed by Duval, Li, Saraf, and Seneviratne (2016) in 63 advanced and emerging countries between 1995 and 2013. Monnet and Puy (2016) show that the share of the variance of GDP explained by global shocks is lowest during periods of financial integration, which suggests idiosyncratic shocks are more prevalent in those periods.…”

Section: Introductionmentioning

confidence: 55%

Finance and Synchronization

2016

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In the workhorse model of international real business cycles, financial integration exacerbates the cycle asymmetry created by country-specific supply shocks. The prediction is identical in response to purely common shocks in the same model augmented with simple country heterogeneity (e.g., where depreciation rates or factor shares are different across countries). This happens because common shocks have heterogeneous consequences on the marginal products of capital across countries, which triggers international investment. In the data, filtering out common shocks requires therefore allowing for country-specific loadings. We show that finance and synchronization correlate negatively in response to such common shocks, consistent with previous findings. But finance and synchronization correlate non-negatively, almost always positively, in response to purely country-specific shocks.

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Matched trade at the firm level and the micro origins of international business‐cycle comovement

Friberg

Sanctuary

2020

Int. J Fin Econ

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This article uses firm × national market export and import data for all Swedish private sector firms for 1997–2014 to examine the firm‐level contribution of trade and foreign ownership to the correlation between Swedish value added growth and partner country gross domestic product (GDP) growth. Export and import links increase the firm‐level correlation but net out for firms that both export to and import from the same market, evidence that this type of ‘natural hedging’ can help reduce a firm's exposure to foreign economic shocks. We proceed to aggregate the firm‐level results to the whole economy and find that severing firm‐level ties with a foreign market is predicted to lower the correlation between Swedish value added growth and foreign GDP growth from 0.72 to 0.64 on average. Gabaix's ‘granularity’ of trade is central to this result: if all firms are given equal weight overall correlations are essentially unaffected by severing firm level ties. Natural hedging is quantitatively important at the firm level and also plays a role in limiting overall comovements.

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Value-added trade and business cycle synchronization

Cited by 84 publications

References 22 publications

Business cycle synchronisation in East Asia: The role of value‐added trade

Business cycle synchronisation in East Asia: The role of value‐added trade

Finance and Synchronization

Matched trade at the firm level and the micro origins of international business‐cycle comovement

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