How Does Trade In Value-added Affect International Business Cycle Comovement

With the acceleration of the process of economic globalization,a country's economic fluctuation is increasingly transmitted to other countries through trade,investment or other channels,so that the world shows the phenomenon of business cycle comovement.Meanwhile,the progress of information technology and the decrease of transportation cost bring about the value chain specialization and modular production,which leads to large deviation between a country's total export volume and the value-added created by its production stage.However,previous literature rarely considers this deviation and falsely measure the linkage of bilateral trade.Thus,there is a lack of reasonable and consistent explanation for research on the relationship between trade and international business cycle comovement.Based on the perspective of global value chain,this paper studies the relationship between trade in value-added and business cycle comovement.The study subjects of this paper are 43 countries included in the latest world input-output database(WIOD).After theoretical mechanism analysis and status analysis,this paper examines the influence of trade in value-added on international business cycle comovement by adopting data of trade in value-added computed from world input-output tables,defining bilateral trade in value-added intensity index and using panel data model and instrumental variables estimation.This study shows that trade in value-added is an important channel of economic fluctuations from the perspective of global value chain,which can be further divided into final products trade channel,direct intermediate goods channel and indirect intermediate goods trade channel.The degree of business cycle comovement measured by quasi correlation coefficient of real GDP growth rate has a general tendency of increase,the bilateral trade linkage estimated by bilateral trade in value-added intensity index also presents rising trend,and there is a roughly positive correlation between these two variables.As to empirical study,the regression analysis based on the full sample data shows that trade in value-added has a positive,significant and robust effect on business cycle comovement and this effect does not change when other control variables are added.The regression analysis by distinguishing different production stages shows that the impact of bilateral trade valued-added intensity in final goods is greater than that of bilateral trade valued-added intensity in direct and indirect intermediate goods.The regression analysis by distinguishing different income levels shows that the impact of bilateral trade valued-added intensity with indirect trade partners is greater among developing countries than among developed countries.The possible reason is that most of the developing countries are in the middle part of the value chain when participating in global trade and international specialization,while developed countries are mostly in the ends of the value chain.Besides,investment,industrial structure and intra-industry trade are also important factors of bilateral business cycle comovement.More bilateral foreign direct investment and higher level of intra-industry trade contribute to stronger bilateral business cycle comovement,while similar industrial structure leads to weaker comovement.This paper clarifies and induces the trade transmission channel of international business cycle comovement,which extends the theoretical study of business cycle comovement area.The examination analysis based on bilateral trade in value-added intensity supplements the empirical study of this area and contributes to the solution of ?trade comovement puzzle?.The policy proposal of this paper sheds new lights on the issues of world trade development and stable economic growth.