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The network origins of trade comovement

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  • Dainauskas, Justas

Abstract

I develop a production network model of the world economy that features Transcendental Logarithmic (a.k.a. translog) aggregators of varieties. This gives rise to variable substitution elasticities that consistent with the evidence are inversely related to the importer expenditure shares per exporter at the country-sector level. I quantify the model using data for 1970–2018 from 19 OECD economies and 30 sectors. Compared to the analogous constant elasticity version of the model, I find that the translog model amplifies international shock transmission between major trade partners and attenuates transmission elsewhere, which to an extent resolves the “trade comovement puzzle”.

Suggested Citation

  • Dainauskas, Justas, 2024. "The network origins of trade comovement," Journal of International Economics, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001375
    DOI: 10.1016/j.jinteco.2024.104010
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    Keywords

    Translog aggregators; Variable elasticities of substitution; Input–output linkages; Shock transmission; Synchronisation; International Real Business Cycles;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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