The effects of trade on business cycle synchronization

The aim of the study which will be presented during this webinar is to investigate whether trade promotes countries to follow similar growth cycles. Convergence in business cycles is thought to be one of the desired components of an optimal currency area.By looking at data from the years 2001 to 2017 (for all of the EU member states), this study conducts an empirical exercise that looks at how much trade has played a role in making countries have synchronized business cycles. In doing so , the study simultaneously accounts for the impact on sector specialization and financial linkages between the countries. The findings are that trade does promote cycle convergence, however a stronger driver of convergence is sector/industry alignment. The policy recommendation from such a finding is that encouraging similarities in industry specialization would be a more efficient strategy than promoting trade in order to promote convergence of business cycles.

Kanya Paramaguru is PhD student at the Department of Economics and Finance, Brunel University.
Her research interests lie broadly in Macroeconomics , international trade and econometrics. Kanya's current research focuses on International trade and the impacts on economic integration of countries.