Trade Integration and Business Cycle Synchronization in the EMU: the Negative Effect of New Trade Flows
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- handle: 10670/1.8v013a
- hal: hal-02440559
- doi: 10.1007/s11079-014-9318-8
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info:eu-repo/semantics/altIdentifier/doi/10.1007/s11079-014-9318-8
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Jean-Sébastien Pentecôte et al., « Trade Integration and Business Cycle Synchronization in the EMU: the Negative Effect of New Trade Flows », HAL-SHS : économie et finance, ID : 10.1007/s11079-014-9318-8
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Résumé
This paper questions the impact of trade integration on business cycle sychroniza-tion in the EMU by distinguishing increase of existing trade flows (the intensive margin) and creation of new trade flows (the extensive margin). Using a DSGE model, we find that synchronization is weakened when new firms are allowed to export as a response to productivity gains. Consistenly with our model and using disaggregated data over 1995-2007 for the 11 founding members of the EMU, we find that trade intensity has a positive direct effect while new trade flows have a negative effect on business cycle synchronization. Furthermore, new flows play essentially an indirect role by intensifying specialization and explain 60% of the overall effect of trade intensity and specialization on synchronization.