Working Paper: NBER ID: w15428
Authors: Diego A. Comin; Norman Loayza; Farooq Pasha; Luis Serven
Abstract: We build a two country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country, and (ii) adjustment costs to investment flows. We calibrate the model to match the Mexico-U.S. trade and FDI flows. The model is able to explain the following stylized facts: (i) U.S. and Mexican output co-move more than consumption; (ii) U.S. shocks have a larger e¤ect on Mexico than in the U.S.; (iii) U.S. business cycles lead over medium term fluctuations in Mexico; (iv) Mexican consumption is more volatile than output.
Keywords: business cycles; developing countries; technology diffusion; investment flows
JEL Codes: E3; F1; F2; F4; O3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| US business cycle fluctuations (F44) | Mexican GDP (N16) |
| US shocks (F69) | Mexican GDP (N16) |
| US shocks (F69) | embodied productivity (O49) |
| US shocks (F69) | speed of technology diffusion to Mexico (O54) |
| speed of technology diffusion to Mexico (O54) | productivity levels (O49) |
| US shocks (F69) | volatility in Mexico's output fluctuations (N16) |