Working Paper: NBER ID: w13731
Authors: Ariel Burstein; Christopher Kurz; Linda Tesar
Abstract: Countries that are more engaged in production sharing exhibit higher bilateral manufacturing output correlations. We use data on trade flows between US multinationals and their affiliates as well as trade between the United States and Mexican maquiladoras to measure production-sharing trade and its link with the business cycle. We then develop a quantitative model of international business cycles that generates a positive link between the extent of vertically integrated production-sharing trade and internationally synchronized business cycles. A key assumption in the model is a relatively low elasticity of substitution between home and foreign inputs in the production of the vertically integrated good.
Keywords: trade; production sharing; business cycles; international economics
JEL Codes: F4; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| production sharing (L24) | business cycle synchronization (F44) |
| production sharing (L24) | bilateral manufacturing output correlations (F14) |
| U.S. output (E23) | business cycle synchronization (F44) |
| production sharing (L24) | bilateral output correlations with U.S. manufacturing output (F69) |
| intensity of production sharing (E23) | bilateral output correlations (C10) |
| share of production sharing in trade (F10) | output correlations (C67) |
| exports used in vertically integrated production (F10) | aggregate fluctuations (E10) |