International Trade and the Business Cycle

Concern about permanent layoffs and the experience of displaced workers is high because of the restructuring in firms currently taking place, and the effect of changes in international trade on some industries, often leading to layoffs. Our understanding of permanent layoffs has been hampered by the lack of appropriate data until recently. This paper uses two relatively new sources of data to examine (1) the variation in permanent layoffs over the business cycle, primarily to determine their significance during the expansionary periods when decreases in aggregate demand play little role in the layoff process, (2) where permanent layoff are concentrated in the economy during expansionary periods when restructuring and the competitive process play the major role in layoffs, and (3) the labor market experiences of displaced workers following the layoff.

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Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement

American Economic Journal Macroeconomics ◽

10.1257/mac.2.2.95 ◽

2010 ◽

Vol 2 (2) ◽

pp. 95-124 ◽

Cited By ~ 60

Author(s):

Julian di Giovanni ◽

Andrei A Levchenko

Keyword(s):

International Trade ◽

Business Cycle ◽

Bilateral Trade ◽

Intermediate Inputs ◽

Cross Border ◽

Industry Level ◽

Vertical Linkages ◽

Cross Country ◽

The Business Cycle ◽

Total Impact

Countries that trade more with each other exhibit higher business cycle correlation. This paper examines the mechanisms underlying this relationship using a large cross-country, industry-level panel dataset of manufacturing production and trade. We show that sector pairs that experience more bilateral trade exhibit stronger comovement. Vertical linkages in production are an important explanation behind this effect: bilateral international trade increases comovement significantly more in cross-border industry pairs that use each other as intermediate inputs. Our estimates imply that these vertical production linkages account for some 30 percent of the total impact of bilateral trade on the business cycle correlation. (JEL E32, F14, F43)

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