Working Paper

Vertical specialization and international business cycle synchronization

Abstract: We explore the impact of vertical specialization?trade in goods across multiple stages of production?on the relationship between trade and international business cycle synchronization. We develop a model in which the degree of vertical specialization is endogenously determined by comparative advantage across heterogeneous goods and varies with trade barriers between countries. We show analytically that fluctuations in measured productivity in our model are not linked across countries through trade, despite the greater transmission of technology shocks implied by higher degrees of vertical specialization. In numerical simulations, we find this transmission is insufficient in generating substantial dependence of business cycle synchronization on trade intensity.

JEL Classification: E32; F41;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2008

Number: 21

Pages: 49 pages

Note: Published as: Arkolakis, Costas and Ananth Ramanarayanan (2009), "Vertical Specialization and International Business Cycle Synchronization," The Scandinavian Journal of Economics 111 (4): 655-680.