Medium-term Business Cycles inDeveloping Countries

Comin, Diego ; Loayza, Norman ; Pasha, Farooq ; Serven, Luis

关键词: ADVANCED COUNTRIES;    ADVANCED ECONOMY;    ARBITRAGE;    ASSET PRICE;    BENCHMARK;   

DOI  :  10.1596/1813-9450-5146
RP-ID  :  WPS5146

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Empirical evidence - including thecurrent global crisis - suggests that shocks from advancedcountries often have a disproportionate effect on developingeconomies. Can this account for the fact that aggregatefluctuations are larger and more persistent in the latterthan in the former economies? And what are the mechanisms atplay? This paper addresses these questions using a model ofan industrial and a developing economy trading goods andassets, with (i) a product cycle shaping the range ofintermediate goods used to produce new capital in eachcountry, and (ii) investment adjustment costs in thedeveloping economy. Innovation by the advanced economyresults in new intermediate goods, at first produced athome, and eventually transferred to the developing economythrough direct investment. The pace of innovation andtechnology transfer is driven by profitability. This processof technology diffusion creates a medium-term connectionbetween both economies, over and above the short-term linkthrough trade. Calibration of the model to matchMexico-United States trade and foreign direct investmentflows shows that this mechanism can explain why shocks tothe United States economy have a larger effect on Mexicothan on the United States itself, and hence why Mexico showshigher volatility than the United States; why businesscycles in the United States lead to medium-term fluctuationsin Mexico; and why consumption is not less volatile thanoutput in Mexico.