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Trade in Capital Goods and Investment-Specific Technical Change

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Abstract
This paper studies the role of trade in capital goods and investment-specific technical change in the determination of the cross-country correlation of output and the volatility of the terms of trade. The cross-country correlation of output for G7 countries ranges from 0.42 to 0.85 and the relative volatility of the terms of trade ranges from 1.24 to 6.06. The standard model with total factor productivity change and trade in final goods only generates a cross-country correlation of 0.05 and a volatility of 0.68. Models that allow trade in capital goods and investment-specific technical change produce a cross-country correlation of at least 0.47 and a volatility of at least 3.86.

Suggested Citation

  • Martin Boileau, 1999. "Trade in Capital Goods and Investment-Specific Technical Change," Cahiers de recherche CREFE / CREFE Working Papers 68, CREFE, Université du Québec à Montréal.
    • Handle: RePEc:cre:crefwp:68
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    Cited by:

    1. Erceg, Christopher J. & Guerrieri, Luca & Gust, Christopher, 2008. "Trade adjustment and the composition of trade," Journal of Economic Dynamics and Control, Elsevier, vol. 32(8), pages 2622-2650, August.
    2. Aydan Dogan, 2019. "Investment Specific Technology Shocks and Emerging Market Business Cycle Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 202-220, October.
    3. Boileau, Martin & Normandin, Michel, 2017. "The price of imported capital and consumption fluctuations in emerging economies," Journal of International Economics, Elsevier, vol. 108(C), pages 67-81.
    4. George Alessandria & Carter Mix, 2021. "Trade Policy is Real News: Theory and Evidence," International Finance Discussion Papers 1330, Board of Governors of the Federal Reserve System (U.S.).
    5. Letendre, Marc-André & Obaid, Sabreena, 2020. "Emerging economy business cycles: Interest rate shocks vs trend shocks," Economic Modelling, Elsevier, vol. 93(C), pages 526-545.
    6. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2016. "Trade and the Global Recession," American Economic Review, American Economic Association, vol. 106(11), pages 3401-3438, November.
    7. Koichi Yoshimine, 2010. "The Transmission of US Business Cycles to the Canadian Economy," International Economic Journal, Taylor & Francis Journals, vol. 24(2), pages 155-170.
    8. Takeuchi, Fumihide, 2011. "The role of production fragmentation in international business cycle synchronization in East Asia," Journal of Asian Economics, Elsevier, vol. 22(6), pages 441-459.
    9. Parantap Basu & Christoph Thoenissen, 2011. "International business cycles and the relative price of investment goods," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 580-606, May.
    10. Simon Bilo, 2018. "The international business cycle as intertemporal coordination failure," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 31(1), pages 27-49, March.
    11. Baxter, Marianne & Farr, Dorsey D., 2005. "Variable capital utilization and international business cycles," Journal of International Economics, Elsevier, vol. 65(2), pages 335-347, March.
    12. Johri, Alok & Letendre, Marc-André & Luo, Daqing, 2011. "Organizational capital and the international co-movement of investment," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 511-523.
    13. Peter N. Ireland, 2013. "Stochastic Growth In The United States And Euro Area," Journal of the European Economic Association, European Economic Association, vol. 11(1), pages 1-24, February.
    14. Alok Johri & Md Mahbubur Rahman, 2022. "The Rise and Fall of India's Relative Investment Price: A Tale of Policy Error and Reform," American Economic Journal: Macroeconomics, American Economic Association, vol. 14(1), pages 146-178, January.
    15. George Alessandria & Carter Mix, 2019. "Trade Policy is Real News: A quantitative analysis of past, current, and future changes in U.S. trade barriers," 2019 Meeting Papers 545, Society for Economic Dynamics.
    16. Parantap Basu & Christoph Thoenissen, 2011. "International business cycles and the relative price of investment goods," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 580-606, May.
    17. M. Herrerias & Vicente Orts, 2012. "Equipment investment, output and productivity in China," Empirical Economics, Springer, vol. 42(1), pages 181-207, February.
    18. Maria Jesus Herrerias, 2010. "The Causal Relationship between Equipment Investment and Infrastructures on Economic Growth in China," Frontiers of Economics in China-Selected Publications from Chinese Universities, Higher Education Press, vol. 5(4), pages 509-526, December.
    19. Millan L. B. Mulraine, 2005. "Investment-Specific Technology Shocks in a Small Open Economy," Macroeconomics 0506009, University Library of Munich, Germany.
    20. Aydan Dogan, 2019. "Investment Specific Technology Shocks and Emerging Market Business Cycle Dynamics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 34, pages 202-220, October.
    21. Cook, David, 2002. "Market entry and international propagation of business cycles," Journal of International Economics, Elsevier, vol. 56(1), pages 155-175, January.
    22. Marc‐André Letendre & Daqing Luo, 2007. "Investment‐specific shocks and external balances in a small open economy model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(2), pages 650-678, May.
    23. William D. Craighead, 2020. "Intermediate Goods and Exchange Rate Disconnect," Open Economies Review, Springer, vol. 31(1), pages 113-129, February.
    24. Anthony Landry, 2018. "Capital-Goods Imports and U.S. Growth," 2018 Meeting Papers 208, Society for Economic Dynamics.
    25. Mulraine, Millan L. B., 2006. "Real Exchange Rate Dynamics With Endogenous Distribution Costs," MPRA Paper 9, University Library of Munich, Germany.

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    More about this item

    Keywords

    International real business cycles;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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