Specialization patterns, GDP correlations, and external balances

Author(s)
Alejandro Cunat, Robert Zymek
Abstract

This article provides evidence of a link between specialization patterns—in intermediate inputs or final goods—and business cycle correlations: countries with a similar intermediate goods content of exports tend to have more correlated gross domestic product fluctuations and external balances. We produce a model that replicates these facts. A productivity shock in a large country (‘the U.S.’) has a smaller effect on the terms of trade of countries that share its specialization, while being shared fully with countries specialized in the other type of good through a terms-of-trade effect. In the presence of complete asset markets, the trade balance reflects the flow of insurance payments. All countries who benefit little from the shock in the large country will have correlated, negative net exports. The trade balances of all other countries will jointly move in the opposite direction.

Organisation(s)
Department of Economics
External organisation(s)
University of Edinburgh
Journal
CESifo Economic Studies
Volume
63
Pages
141-161
ISSN
1610-241X
DOI
https://doi.org/10.1093/cesifo/ifw019
Publication date
06-2017
Peer reviewed
Yes
Austrian Fields of Science 2012
Foreign trade, Economic policy
Keywords
Portal url
https://ucris.univie.ac.at/portal/en/publications/specialization-patterns-gdp-correlations-and-external-balances(01fafc93-916d-473d-89ad-e318170dc3f7).html