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Regional Business Cycles and National Economic Borders: What Are the Effects of Trade in Developing Countries?

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Abstract

Using regional gross product data for Argentina and Brazil over the period 1961–2000, we find that business cycle synchronization within countries is substantially larger than across them. Factors such as monetary policy and large country-specific shocks play a significant role in explaining this observed border effect. Furthermore, our GMM single and multiple equation estimates based on Brazilian states and Argentinean national data provide indicative evidence that the higher level of trade among regions within a country is an important factor that accounts for differences in output correlations across countries.

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Authors and Affiliations

  1. Inter-American Development Bank, 1300 New York Avenue, Stop W0612, 20577, Washington D.C., USA

    Christian Volpe Martincus

  2. University of Sussex, Brighton, UK

    Andrea Molinari

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  1. Christian Volpe Martincus
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  2. Andrea Molinari
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Correspondence to Christian Volpe Martincus.

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JEL no.

F15, F42, E32, R11

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Volpe Martincus, C., Molinari, A. Regional Business Cycles and National Economic Borders: What Are the Effects of Trade in Developing Countries?. Rev. World Econ. 143, 140–178 (2007). https://doi.org/10.1007/s10290-007-0101-4

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  • DOI: https://doi.org/10.1007/s10290-007-0101-4

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