Jin, Keyu 
ORCID: 0000-0002-0139-799X and Li, Nan
(2011)
Factor proportions and international business cycles.
CEP Discussion Paper (No. 1090).
London School of Economics and Political Science. Centre for Economic Performance, London, UK.
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Abstract
Positive investment comovements across OECD economies as observed in the data are difficult to replicate in open-economy real business cycle models, but also vary substantially in degree for individual country-pairs. This paper shows that a two-country stochastic growth model that distinguishes sectors by factor intensity (capital-intensive vs. labor-intensive) gives rise to an endogenous channel of the international transmission of shocks that first, can substantially ameliorate the “quantity anomalies” that mark large open-economy models, and second, generate a cross-sectional prediction that is strongly supported by the data: investment correlations tend to be stronger for country-pairs that exhibit greater disparity in the factor-intensity of trade. In addition, three new pieces of evidence support the central mechanism: (1) the production composition of capital versus labor-intensive sectors changes over the business cycle; (2) the prices of capital-intensive goods and labor-intensive goods are respectively, procyclical and countercyclical; (3) a positive productivity shock in the U.S. tilts the composition of production towards capital-intensive sectors in other countries.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://cep.lse.ac.uk/ |
| Additional Information: | © 2011 The Authors |
| Divisions: | Economics Centre for Economic Performance |
| Subjects: | H Social Sciences > HB Economic Theory |
| JEL classification: | F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics |
| Date Deposited: | 20 Feb 2012 12:25 |
| Last Modified: | 11 Dec 2024 19:05 |
| URI: | http://eprints.lse.ac.uk/id/eprint/41946 |
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