1 General Introduction 13
1.1 Introduction . . . 13
1.2 Motivations . . . 13
1.3 The Approach Pursued . . . 15
1.4 Outline of the Thesis . . . 16
1.5 REFERENCES . . . 18
2 International Business Cycles 21 2.1 Introduction . . . 21
2.1.1 What Are Business Cycles ? . . . 21
2.1.2 The Various Types of Fluctuations . . . 23
2.1.3 Some Preliminary Evidence About Business Cycles . . 25
2.1.4 International Business Cycles . . . 27
2.1.5 Why Worry About (International) Business Cycles ? . 31 2.1.6 Outline of the Chapter . . . 34
2.2 A Selected Review of the Literature . . . 35
2.3 An Illustrative Theoretical Model . . . 38
2.4 The Empirical Model: Estimation Strategy . . . 43
2.4.1 Introduction: The GDFM Framework . . . 43
2.4.2 Estimating a GDFM: The FHLR Methodology . . . 45
2.4.3 Some Practical Specification Issues . . . 47
2.4.4 Assessing The Number of Common Shocks . . . 48
2.4.5 Final Model Specification . . . 50
2.5 Data Issues . . . 52
2.6 Empirical Results . . . 53
2.6.1 Is the Business Cycle a World Phenomenon ? . . . 54
2.6.2 How Are the Various Countries Integrated in the World Economy ? . . . 55
5
6 CONTENTS 2.6.3 An Analysis of Some Regional Integration Agreements 60
2.6.4 Is There An European Business Cycle ? . . . 64
2.7 Concluding remarks . . . 68
2.8 REFERENCES . . . 69
3 Trade and Asymmetric Shocks in the EMU 73 3.1 Introduction . . . 73
3.1.1 Motivation . . . 73
3.1.2 Trade, Exchange Rate and Market Structure: an Illus- tration . . . 75
3.1.3 Some Stylized Facts . . . 77
3.1.4 Outline of the Chapter . . . 79
3.2 A Selected Review of the Literature . . . 79
3.2.1 Exchange Rate, Industrial Organization and Trade . . 79
3.2.2 Sector Specialization and Asymmetric Shocks . . . 83
3.3 An Illustrative Theoretical Model . . . 85
3.4 The Empirical Model and Data Issues . . . 87
3.4.1 The Empirical Model . . . 88
3.4.2 Data Issues . . . 90
3.5 Estimation Results . . . 91
3.6 An Alternative Specification . . . 93
3.6.1 Motivations . . . 93
3.6.2 A Digression: Exchange Rate Volatility and Trade . . . 94
3.6.3 The Database . . . 95
3.6.4 The Benchmark Model . . . 96
3.6.5 The Role of Market Structure . . . 100
3.7 Industrial Specialization in Europe . . . 108
3.8 Europe and the Euro-Dollar Exchange Rate . . . 108
3.8.1 The Sensitivity to Exchange Rate and the Industrial Structure . . . 110
3.8.2 The Sensitivity to Exchange Rate Changes and Com- petition from the Dollar Zone . . . 114
3.9 Conclusions and Policy Implications . . . 116
3.10 REFERENCES . . . 120
4 Openness, Specialization and Growth 125 4.1 Introduction . . . 125
4.1.1 Some Stylized Facts and Motivation . . . 125
4.1.2 An Informal Journey Into the Theory . . . 129
4.1.3 Outline of the Chapter . . . 131
4.2 A Selected Review of the Empirical Literature . . . 131
4.2.1 The Trade and Growth Empirical Literature I: With- out Specialization Concerns . . . 132
4.2.2 The Trade and Growth Empirical Literature II: With Specialization Concerns . . . 136
4.3 The Model . . . 140
4.4 Data Issues . . . 144
4.4.1 General Issues . . . 144
4.4.2 Measuring Openness . . . 145
4.4.3 Measuring Specialization . . . 147
4.5 Estimation Results . . . 153
4.5.1 Estimation Issues . . . 153
4.5.2 Aggregate Specialization Indicators . . . 154
4.5.3 Disaggregate Specialization Indicators . . . 158
4.6 Conclusions and Policy Implications . . . 166
5 General Conclusion 171 A Appendix to Chapter 2 175 A.1 The Database . . . 175
A.2 Technical assumptions for a GDFM . . . 175
B Appendix to Chapter 3 179 B.1 The Database Used for Sections 3.5 and 3.7 . . . 179
B.1.1 The Sectors . . . 179
B.1.2 The Various Countries . . . 180
B.2 The Database Used for Sections 3.6 and 3.8 . . . 181
B.2.1 The Sectors . . . 181
B.2.2 The Various Countries . . . 182
C Appendix to Chapter 4 183 C.1 List of Countries Under Consideration . . . 183
C.2 Specialization Structure Indicators . . . 184
C.2.1 Adjusted and Unadjusted Contributions to the Trade Balance . . . 184
C.2.2 The Adaptation Indicator I: Demand-Side . . . 185
8 CONTENTS C.2.3 The Adaptation Indicator II: Supply-Side . . . 185 C.3 Evolution of the Balassa Index - Decomposition by Stage . . . 185 C.4 The CHELEM Sector Nomenclature . . . 190 C.5 Estimation Results . . . 191
1.1 The EU-15, the USA and Japan - Summary Statistics (2001) 16 2.1 Business and Growth Cycles Turning Points - Various
Countries (1980-2002). . . 28
2.2 Contemporaneous Correlations: GDP Growth - Selected Countries (1960-2003). . . 30
2.3 Cross Correlations With Belgian GDP - Selected Coun- tries (1960-2003) . . . 32
2.4 Identifying a Common Component in International Eco- nomic Fluctuations: A Selected Review of the Literature. 39 2.5 Percentage Variance Explained by the First k Common Factors. . . . 51
2.6 Model Specifications . . . 52
2.7 Percentage Variance Explained By the Common Compo- nents. . . 57
2.8 Regional Similarities. . . . 63
2.9 Variance Decomposition Among EU Countries.. . . 67
3.1 Exchange Rate Pass-Through: Selected Studies . . . 84
3.2 Estimation Results For Equations (3.9) to (3.12) . . . 92
3.3 Estimation Results of Equations (3.13) and (3.14) . . . 99
3.4 Estimation Results of Equations (3.15) and (3.16) Using Concentration Ratio. . . 103
3.5 Estimation Results of Equations (3.15) and (3.16) Using Segmentation. . . . 104
3.6 Estimation Results of Equations (3.15) and (3.16) Using Scale Economies.. . . 105
9
10 LIST OF TABLES 3.7 Estimation Results of Equations (3.15) and (3.16) Using
All Market Structure Indicators. . . . 107
3.8 Countries’ Specialization (EU15=100) and Sector Con- centration in Europe . . . 109
3.9 Selected Sectoral Indicators - EU11 . . . 112
3.10 Breakdown of Industrial Production by Sector (1997). . . 113
3.11 Implied Changes in Market Shares Following an 10 % De- preciation in the Dollar . . . 117
4.1 The Asian Tigers . . . 128
4.2 Trade and Growth Without Specialization Concerns: Some Selected Studies . . . 137
4.3 The Impact of Specialization on Growth: Some Selected Studies . . . 141
4.4 Estimation Results for Equation (4.7) . . . 155
4.5 Estimation Results for Equation (4.8) With lnad . . . 157
4.6 Estimation Results for Equation (4.8) With suv . . . 159
4.7 Estimation Results for Equation (4.9) . . . 162
4.8 The Impact of Specialization - Summary Results . . . 164
A.1 The Database for Chapter 2: The Various Countries . . . 176
B.1 The Various Sectors . . . 179
B.2 The Various Countries . . . 180
B.3 The Various Sectors . . . 181
B.4 The Various Countries . . . 182
C.1 The Full 72-Products Nomenclature . . . 190
C.2 The 6-Stages Nomenclature . . . 191
2.1 An Idealized Business Cycle . . . 23
2.2 Kondratieff Cycles in the US (1790-2000) . . . 24
2.3 Business Cycles in the US (1947-2004) . . . 26
2.4 Dynamic Scree Plots for the Whole Database. . . . 49
2.5 FHLR Identification Criterion. . . . 51
2.6 Box-Plot of the Whole Database. . . . 53
2.7 Average of the Spectra for the World and Idiosyncratic Components. . . . 54
2.8 Spectra for the World and Idiosyncratic Components - USA and Iran. . . . 56
2.9 Percentage Variance Explained by the Common Shocks. . 58
2.10 The Relationship Between R2i and Overall Variability. . . . 60
2.11 The Relationship Between R2i and Q2i. . . . 61
2.12 The Relationship Between R2i and Idiosyncratic Compo- nent Persistence.. . . 61
2.13 Dynamic Scree Plot - Idiosyncratic Components of EC Countries.. . . 65
2.14 Average Spectral Densities for the European Subcommon and Purely Idiosyncratic Components. . . . 66
3.1 The US Dollar and US Import Prices (1982-1989) . . . 77
3.2 The Euro-Dollar Exchange Rate and the European Trade Balance (1982-1989) . . . 78
4.1 Initial Openness and Subsequent Growth: A First Appraisal126 4.2 Evolution of ltrsh and trg - USA and China . . . 147
4.3 Evolution Real Value Added Per Worker - USA . . . 151
4.4 Evolution of World Market Shares . . . 151 11
12 LIST OF FIGURES 4.5 Evolution of World Market Shares For Basic Manufactures165 4.6 Evolution of World Market Shares For Consumption Goods166 C.1 Balassa Index for Primary Goods and Evolution - Selected
Countries . . . 186 C.2 Balassa Index for Basic Manufactures and Evolution - Se-
lected Countries . . . 187 C.3 Balassa Index for Intermediates and Evolution - Selected
Countries . . . 187 C.4 Balassa Index for Equipment Goods and Evolution - Se-
lected Countries . . . 188 C.5 Balassa Index for Mixed Goods and Evolution - Selected
Countries . . . 188 C.6 Balassa Index for Consumption Goods and Evolution -
Selected Countries . . . 189
