The Trade Conductive Mechanism Of International Business Cvcle Svnchronization

The international transmission of the shock of financial crisis attracted the attention of economists of macro-economics. China as the biggest exporting country, its business cycle synchronization with its trading partners is obvious. Under the globalizing and shocking circumstance of world economy, it’s of great significance to study the conductive mechanism through which business cycle transmitted. However, most of the literature focus on the aggraded trade data and ignores the micro product level properties (different margins of trade). How to introduce the margins of trade into the framework of the international business cycle model so as to investigate the conductive mechanism? What’s the difference between the traditional and the new model? How to go deep into the aggregated trade data and further test the effects of different margins of trade on the business cycle synchronization? This dissertation is trying to answer these questions.We first document a brand new channel (extensive margins of trade) through with international business cycle synchronization transmitted in our theoretical analysis model. And then, based on the updated H-K’s Approach to Ternary Margins of Trade Decomposition and the typical facts of the business cycle synchronization between China and its trading partners, and between East Asian countries, we empirically test the conductive mechanism of business cycle synchronization through different margins of trade.This dissertation makes the corresponding discussion in7chapters, the main contents and the relative conclusions are as follows:Chapter1:Introduction. This chapter introduces the research background, the purpose and significance, the research idea and method, the content arrangement and the definition of concepts, which play as the role of outlining. Chapter2:Theoretical foundation and the related literature review. First, we review the corresponding theoretical foundation:theory of business cycle and international business cycle transmission and international trade theory of firm heterogeneity. And then we review the research literature from three aspects:the synchronization of international business cycle, the transmission of international business cycle synchronization through trade and other transmission approach. The main purpose of this chapter is to make the people have a deep understanding to the research of transmission of international business cycle synchronization through trade and provide a theoretical basis for the following theoretical and empirical research. Chapter3:The theoretical model of margins of trade and international transmission of business cycle. This chapter we develop a two-country model with a representative consumer and heterogeneous intermediate firms. Following Ghironi and Melitz (2005) and Alessandria and Choi (2007), we associate a firm with a unique variety of a differentiated good. We further find two channels strengthen the correlation of TFP growth rates between trading partners. The first channel is the traditional demand-supply spillover effect. And the second brand new channel is the international transmission through the extensive margin of trade which reinforcing the correlation of TFP growth rates between trading partners. Based on the transmission channel we make two propositions:the business cycle synchronization between trading partners increases with the more trading varieties and the less trading cost. Chapter4: Measurement of business cycle synchronization and the construction of H-K decomposition approach of three margins of trade (H-K approach for short). We first make a comparison of different methods of the generation of cyclical business cycle data and the measurement of business cycle synchronization. We then propose the H-K approach which decomposing the ratio of international trade into different margins:the extensive margin, the intensive margin, the quantity margin and the price margin. Chapter5:The empirical analysis of business cycle synchronization transmission through international trade for China and its main trading partners. This chapter analyzes the business cycle synchronization transmission through international trade for China and its main trading partners empirically. We first document the existence of business cycle synchronization between China and its main trading partners. Then we decompose the aggregate trade volume into three margins of trade by using the H-K approach, and further document the effect of margins of trade on the business cycle synchronization between China and its main trading partners. Chapter6:The empirical analysis of business cycle synchronization transmission through international trade for East Asian countries. Based on the H-K approach, this chapter we make use of the micro trade data from the product level to analyze the business cycle synchronization transmission through international trade for East Asian countries empirically. We find that the bilateral extensive margin of international trade has obvious positive effect on the business cycle synchronization between East Asian countries which corresponding to the theoretical conclusion; While the bilateral quantity margin has negative effect; the bilateral price margin has no obvious effect; other non-trade factors such as the similarity of industrial and financial structure has positive effects. Chapter7:Conclution and the prospect of research.The main findings and innovation points are in the following aspects:First, the existing study on the international business cycle synchronization transmission through trade almost based on the traditional and new trade theory and ignored the dynamics of heterogeneous firms and its effect on the business cycle synchronization. In our theoretical analysis, we introduce the main assumptions of firm heterogeneity trade theory into the existing analyzing framework of international business cycle and document the transmission channel through the extensive margin of trade.Second, based on the H-K approach, we construct a brand new index to measure the bilateral intensity of margins of international trade (the bilateral intensity of extensive, quantity and price margins of trade), which can take account to the two-way margins of trade between the trading partners.Third, different from previous literature using aggregate trade data to study the international business cycle synchronization transmission through trade, our study makes use of the H-K approach to go deep into the aggregate trade data and adopt trade data from the product level empirically investigate the effect of different margins of trade on the international business cycle synchronization.