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Globalization and synchronization of innovation cycles

Matsuyama, Kiminori, Sushko, Iryna and Gardini, Laura (2015) Globalization and synchronization of innovation cycles. CFM discussion paper series (CFM-DP2015-27). Centre For Macroeconomics, London, UK.

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Abstract

We propose and analyze a two-country model of endogenous innovation cycles. In autarky, innovation fluctuations in the two countries are decoupled. As the trade costs fall and intra-industry trade rises, they become synchronized. This is because globalization leads to the alignment of innovation incentives across firms based in different countries, as they operate in the increasingly global (hence common) market environment. Furthermore, synchronization occurs faster (i.e., with a smaller reduction in trade costs) when the country sizes are more unequal, and it is the larger country that dictates the tempo of global innovation cycles with the smaller country adjusting its rhythm to the rhythm of the larger country. These results suggest that adding endogenous sources of productivity fluctuations might help improve our understanding of why countries that trade more with each other have more synchronized business cycles.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.centreformacroeconomics.ac.uk/Home.aspx
Additional Information: © 2015 The Authors
Divisions: Centre for Macroeconomics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C61 - Optimization Techniques; Programming Models; Dynamic Analysis
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations; Cycles
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies
Sets: Research centres and groups > Centre for Macroeconomics
Date Deposited: 14 Dec 2017 09:39
Last Modified: 05 Sep 2019 23:27
URI: http://eprints.lse.ac.uk/id/eprint/86282

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