Working Paper: NBER ID: w18240
Authors: Robert C. Johnson
Abstract: Does input trade synchronize business cycles across countries? I incorporate input trade into a dynamic multi-sector model with many countries, calibrate the model to match bilateral input-output data, and estimate trade-comovement regressions in simulated data. With correlated productivity shocks, the model yields high trade- comovement correlations for goods, but near-zero correlations for services and thus low aggregate correlations. With uncorrelated shocks, input trade generates more comovement in gross output than real value added. Goods comovement is higher when (a) the aggregate trade elasticity is low, (b) inputs are more substitutable than final goods, and (c) inputs are substitutable for primary factors.
Keywords: Trade; Intermediate Inputs; Business Cycle Comovement
JEL Codes: F1; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| input trade (F19) | gross output comovement (E23) |
| positive productivity shock in one country (O57) | increased gross output in downstream countries (F69) |
| input trade (F19) | synchronization of business cycles (F44) |
| correlated productivity shocks (O49) | trade-comovement correlations (F14) |
| input trade facilitates synchronization (F10) | effects on value-added are weaker (F69) |