Medium-term Business Cycles in Developing Countries
Empirical evidence - including the current global crisis - suggests that shocks from advanced countries often have a disproportionate effect on developing economies. Can this account for the fact that aggregate fluctuations are larger and more pers...
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| Format: | Policy Research Working Paper |
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2012
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| Online Access: | http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20091202115041 http://hdl.handle.net/10986/4338 |
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okr-10986-43382021-04-23T14:02:17Z Medium-term Business Cycles in Developing Countries Comin, Diego Loayza, Norman Pasha, Farooq Serven, Luis ADVANCED COUNTRIES ADVANCED ECONOMY ARBITRAGE ASSET PRICE BENCHMARK BILATERAL TRADE BUDGET CONSTRAINT BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL FORMATION CAPITAL GAINS CAPITAL MARKETS CAPITAL SHARE CAPITAL STOCK COMPARATIVE ADVANTAGE CONSUMERS CREDIT MARKETS CURRENCY CURRENT ACCOUNT BALANCE DECLINE IN INVESTMENT DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DEVELOPING ECONOMY DIVIDENDS DOMESTIC INTEREST RATES DURABLE ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ELASTICITY OF LABOR SUPPLY ELASTICITY OF SUBSTITUTION EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET BUSINESS ENDOGENOUS VARIABLES EQUILIBRIUM EXCHANGE RATE EXOGENOUS VARIABLES EXPENDITURES EXPORTERS EXPORTS FACTOR DEMAND FACTORS OF PRODUCTION FINANCIAL CRISES FOREIGN DIRECT INVESTMENT FUTURE PRICE GDP GOVERNMENT SPENDING GROWTH POTENTIAL GROWTH RATE GROWTH RATES INSURANCE INTEREST RATE INTEREST RATES INTERMEDIATE GOODS INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL CAPITAL INTERNATIONAL CREDIT INTERNATIONAL INSURANCE INTERNATIONAL INVESTMENT INTERNATIONAL LENDING INTERNATIONAL TRADE INVESTING INVESTMENT DECISIONS INVESTMENT FLOWS LABOR MARKET MACROECONOMIC CONDITIONS MACROECONOMIC PERFORMANCE MACROECONOMICS MARGINAL COST MARGINAL COST OF PRODUCTION MARGINAL COSTS MARGINAL PRODUCT MARKET ENTRY MARKET ENTRY COSTS MARKET EQUILIBRIUM MARKET POWER MARKET VALUE OBSOLESCENCE OPEN ECONOMY OPTIMAL INVESTMENT OUTPUT OUTPUTS OUTSOURCING OVERHEAD COST OVERHEAD COSTS PATENTS PERMANENT INCOME POLITICAL ECONOMY PRICE ELASTICITY PRICE FLUCTUATIONS PRIVATE CAPITAL PRODUCTIVITY RATE OF RETURN REAL GDP REAL INTEREST REAL INTEREST RATES RECESSION RETURNS RETURNS TO SCALE SUNK COSTS SUPPLIER SURPLUS TECHNOLOGICAL CHANGE TECHNOLOGY TRANSFER TRADE BALANCE TRADE BARRIERS TRADES TRADING VOLATILITIES VOLATILITY WAGES WHOLESALE PRICE Empirical evidence - including the current global crisis - suggests that shocks from advanced countries often have a disproportionate effect on developing economies. Can this account for the fact that aggregate fluctuations are larger and more persistent in the latter than in the former economies? And what are the mechanisms at play? This paper addresses these questions using a model of an industrial and a developing economy trading goods and assets, with (i) a product cycle shaping the range of intermediate goods used to produce new capital in each country, and (ii) investment adjustment costs in the developing economy. Innovation by the advanced economy results in new intermediate goods, at first produced at home, and eventually transferred to the developing economy through direct investment. The pace of innovation and technology transfer is driven by profitability. This process of technology diffusion creates a medium-term connection between both economies, over and above the short-term link through trade. Calibration of the model to match Mexico-United States trade and foreign direct investment flows shows that this mechanism can explain why shocks to the United States economy have a larger effect on Mexico than on the United States itself, and hence why Mexico shows higher volatility than the United States; why business cycles in the United States lead to medium-term fluctuations in Mexico; and why consumption is not less volatile than output in Mexico. 2012-03-19T19:14:17Z 2012-03-19T19:14:17Z 2009-12-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20091202115041 http://hdl.handle.net/10986/4338 English Policy Research Working Paper ; No. 5146 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper |
| repository_type |
Digital Repository |
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Foreign Institution |
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Digital Repositories |
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World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English |
| topic |
ADVANCED COUNTRIES ADVANCED ECONOMY ARBITRAGE ASSET PRICE BENCHMARK BILATERAL TRADE BUDGET CONSTRAINT BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL FORMATION CAPITAL GAINS CAPITAL MARKETS CAPITAL SHARE CAPITAL STOCK COMPARATIVE ADVANTAGE CONSUMERS CREDIT MARKETS CURRENCY CURRENT ACCOUNT BALANCE DECLINE IN INVESTMENT DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DEVELOPING ECONOMY DIVIDENDS DOMESTIC INTEREST RATES DURABLE ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ELASTICITY OF LABOR SUPPLY ELASTICITY OF SUBSTITUTION EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET BUSINESS ENDOGENOUS VARIABLES EQUILIBRIUM EXCHANGE RATE EXOGENOUS VARIABLES EXPENDITURES EXPORTERS EXPORTS FACTOR DEMAND FACTORS OF PRODUCTION FINANCIAL CRISES FOREIGN DIRECT INVESTMENT FUTURE PRICE GDP GOVERNMENT SPENDING GROWTH POTENTIAL GROWTH RATE GROWTH RATES INSURANCE INTEREST RATE INTEREST RATES INTERMEDIATE GOODS INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL CAPITAL INTERNATIONAL CREDIT INTERNATIONAL INSURANCE INTERNATIONAL INVESTMENT INTERNATIONAL LENDING INTERNATIONAL TRADE INVESTING INVESTMENT DECISIONS INVESTMENT FLOWS LABOR MARKET MACROECONOMIC CONDITIONS MACROECONOMIC PERFORMANCE MACROECONOMICS MARGINAL COST MARGINAL COST OF PRODUCTION MARGINAL COSTS MARGINAL PRODUCT MARKET ENTRY MARKET ENTRY COSTS MARKET EQUILIBRIUM MARKET POWER MARKET VALUE OBSOLESCENCE OPEN ECONOMY OPTIMAL INVESTMENT OUTPUT OUTPUTS OUTSOURCING OVERHEAD COST OVERHEAD COSTS PATENTS PERMANENT INCOME POLITICAL ECONOMY PRICE ELASTICITY PRICE FLUCTUATIONS PRIVATE CAPITAL PRODUCTIVITY RATE OF RETURN REAL GDP REAL INTEREST REAL INTEREST RATES RECESSION RETURNS RETURNS TO SCALE SUNK COSTS SUPPLIER SURPLUS TECHNOLOGICAL CHANGE TECHNOLOGY TRANSFER TRADE BALANCE TRADE BARRIERS TRADES TRADING VOLATILITIES VOLATILITY WAGES WHOLESALE PRICE |
| spellingShingle |
ADVANCED COUNTRIES ADVANCED ECONOMY ARBITRAGE ASSET PRICE BENCHMARK BILATERAL TRADE BUDGET CONSTRAINT BUSINESS CYCLE BUSINESS CYCLES CAPITAL ACCUMULATION CAPITAL FLOWS CAPITAL FORMATION CAPITAL GAINS CAPITAL MARKETS CAPITAL SHARE CAPITAL STOCK COMPARATIVE ADVANTAGE CONSUMERS CREDIT MARKETS CURRENCY CURRENT ACCOUNT BALANCE DECLINE IN INVESTMENT DEVELOPING COUNTRIES DEVELOPING COUNTRY DEVELOPING ECONOMIES DEVELOPING ECONOMY DIVIDENDS DOMESTIC INTEREST RATES DURABLE ECONOMIC FLUCTUATIONS ECONOMIC GROWTH ELASTICITY OF LABOR SUPPLY ELASTICITY OF SUBSTITUTION EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET BUSINESS ENDOGENOUS VARIABLES EQUILIBRIUM EXCHANGE RATE EXOGENOUS VARIABLES EXPENDITURES EXPORTERS EXPORTS FACTOR DEMAND FACTORS OF PRODUCTION FINANCIAL CRISES FOREIGN DIRECT INVESTMENT FUTURE PRICE GDP GOVERNMENT SPENDING GROWTH POTENTIAL GROWTH RATE GROWTH RATES INSURANCE INTEREST RATE INTEREST RATES INTERMEDIATE GOODS INTERNATIONAL BANK INTERNATIONAL BORROWING INTERNATIONAL CAPITAL INTERNATIONAL CREDIT INTERNATIONAL INSURANCE INTERNATIONAL INVESTMENT INTERNATIONAL LENDING INTERNATIONAL TRADE INVESTING INVESTMENT DECISIONS INVESTMENT FLOWS LABOR MARKET MACROECONOMIC CONDITIONS MACROECONOMIC PERFORMANCE MACROECONOMICS MARGINAL COST MARGINAL COST OF PRODUCTION MARGINAL COSTS MARGINAL PRODUCT MARKET ENTRY MARKET ENTRY COSTS MARKET EQUILIBRIUM MARKET POWER MARKET VALUE OBSOLESCENCE OPEN ECONOMY OPTIMAL INVESTMENT OUTPUT OUTPUTS OUTSOURCING OVERHEAD COST OVERHEAD COSTS PATENTS PERMANENT INCOME POLITICAL ECONOMY PRICE ELASTICITY PRICE FLUCTUATIONS PRIVATE CAPITAL PRODUCTIVITY RATE OF RETURN REAL GDP REAL INTEREST REAL INTEREST RATES RECESSION RETURNS RETURNS TO SCALE SUNK COSTS SUPPLIER SURPLUS TECHNOLOGICAL CHANGE TECHNOLOGY TRANSFER TRADE BALANCE TRADE BARRIERS TRADES TRADING VOLATILITIES VOLATILITY WAGES WHOLESALE PRICE Comin, Diego Loayza, Norman Pasha, Farooq Serven, Luis Medium-term Business Cycles in Developing Countries |
| relation |
Policy Research Working Paper ; No. 5146 |
| description |
Empirical evidence - including the
current global crisis - suggests that shocks from advanced
countries often have a disproportionate effect on developing
economies. Can this account for the fact that aggregate
fluctuations are larger and more persistent in the latter
than in the former economies? And what are the mechanisms at
play? This paper addresses these questions using a model of
an industrial and a developing economy trading goods and
assets, with (i) a product cycle shaping the range of
intermediate goods used to produce new capital in each
country, and (ii) investment adjustment costs in the
developing economy. Innovation by the advanced economy
results in new intermediate goods, at first produced at
home, and eventually transferred to the developing economy
through direct investment. The pace of innovation and
technology transfer is driven by profitability. This process
of technology diffusion creates a medium-term connection
between both economies, over and above the short-term link
through trade. Calibration of the model to match
Mexico-United States trade and foreign direct investment
flows shows that this mechanism can explain why shocks to
the United States economy have a larger effect on Mexico
than on the United States itself, and hence why Mexico shows
higher volatility than the United States; why business
cycles in the United States lead to medium-term fluctuations
in Mexico; and why consumption is not less volatile than
output in Mexico. |
| format |
Publications & Research :: Policy Research Working Paper |
| author |
Comin, Diego Loayza, Norman Pasha, Farooq Serven, Luis |
| author_facet |
Comin, Diego Loayza, Norman Pasha, Farooq Serven, Luis |
| author_sort |
Comin, Diego |
| title |
Medium-term Business Cycles in
Developing Countries |
| title_short |
Medium-term Business Cycles in
Developing Countries |
| title_full |
Medium-term Business Cycles in
Developing Countries |
| title_fullStr |
Medium-term Business Cycles in
Developing Countries |
| title_full_unstemmed |
Medium-term Business Cycles in
Developing Countries |
| title_sort |
medium-term business cycles in
developing countries |
| publishDate |
2012 |
| url |
http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20091202115041 http://hdl.handle.net/10986/4338 |
| _version_ |
1764390990337015808 |