Trade, Specialization, and Cycle Synchronization: Explaining Output Comovement between Latin America, China, and India.

China’s and India’s Challenge to Latin America: Opportunity or Threat?

World Bank Publications

Lugar: Washungton DC, USA; Año: 2008; p. 39 - 100

This chapter’s main goal is to analyze whether higher trade integration between the LAC region and China and India is driving higher output correlations. Using a sample of 147 countries (23 industrial economies and 124 developing countries) with annual information for the period 1965–2004, this analysis updates and extends the results in Calderón, Chong, and Stein (2007) for the sample of LAC countries compared with the rest of the world. The regression analysis reveals the following: • Countries with more extensive trade links display higher output comovement. The evidence indicates that a higher degree of intraindustry trade among country pairs may generate a higher degree of business cycle synchronization. • Output specialization, as proxied by the degree of asymmetry in the structure of production among countries, may lead to more-asynchronous business cycles. The same result holds for asymmetries in export and import baskets, although the analysis fails to find a significant effect for asymmetries in structure of imports. • Output specialization—as well as specialization in exports and imports—may reduce the sensitivity of cycle synchronization to changes in bilateral trade. That is, the impact of trade intensity on output comovement is higher for countries with more symmetric structures of production and trade.