Working Paper

Global Trade and GDP Co-Movement


Abstract: We revisit the association between trade and GDP comovement for 135 countries from 1970 to 2009. Guided by a simple theory, we introduce two notions of trade linkages: (i) the usual direct bilateral trade index and (ii) new indexes of common exposure to third countries capturing the role of similarity in trade networks. Both measures are economically and statistically associated with GDP correlation, suggesting an additional channel through which GDP fluctuations propagate through trade linkages. Moreover, high income countries become more synchronized when the content of their trade is tilted toward inputs while trade in final goods is key for low income countries. Finally, we present evidence that the density of the international trade network is associated with an amplification of the association between global trade flows and bilateral GDP comovement, leading to a significant evolution of the trade comovement slope over the last two decades.

Keywords: International trade; International business cycle comovement; Networks; Input-output linkages;

JEL Classification: F15; F44; F62;

https://doi.org/10.17016/IFDP.2020.1282

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Authors

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2020-05-27

Number: 1282

Pages: 43