Accessible Version
Increasing Business Cycles Synchronization: The Role of Global Value Chains, Market Power and Extensive Margin Adjustments Accessible Data
Figure 1: Countries economic activity is more synchronized than ever
Business Cycle Synchronization across income group
time evolution using two time windows
H: High Income, MH: Medium High Income, ML: Medium Low Income, L: Low Income
Percent
| 1981-1990 | 2004-2014 | |
|---|---|---|
| All Countries | 5.62 | 20.23 |
| H-H | 21.84 | 32.06 |
| H-MH | 10.92 | 28.84 |
| H-ML | 0.80 | 20.05 |
| H-L | -0.30 | 8.56 |
| MH-MH | 6.07 | 27.50 |
| MH-ML | 1.80 | 24.12 |
| MH-L | 0.50 | 5.01 |
| ML-ML | -2.20 | 20.80 |
| ML-L | 1.80 | 6.76 |
| L-L | 3.61 | 3.87 |
Note: GDP is HP filtered. Each bar represents the average of all country-pair GDP correlations across countries in each of the two groups shown. For example, H-MH takes the correlations of each country in the H group with each country in the MH group and then average them.
Source: Authors’ computations, based on 150 countries in the World Bank’s World Development Indicators.
Figure 2: Higher markups associated with a lower correlation between terms of trade and GDP fluctuations
This figure shows the relationship between markups (on the horizontal axis) and a measure of sensitivity to foreign shocks at the country level (on the vertical axis). The measure of sensitivity to foreign shock is defined as the correlation between Terms-of-Trade and GDP fluctuations. In this sense, a more negative value means a higher sensitivity of GDP to foreign shocks, as a more negative correlation means that an increase in import prices is more systematically related to a decrease in real GDP.
Each country is represented by a “+” sign, and the downward sloping line shows that there is a negative relationship between markups and the correlation between Terms-of-Trade and GDP. This means that countries with higher markups are more sensitive to foreign shocks.
In the left graph, markups are defined using “Price Cost Margin”, computed using the OECD STAN database. The right graph uses markup estimates from De Loecker and Eeckhout (2018).