The business cycles of countries with greater bilateral trade and multinational production linkages are more closely correlated. But the meaning of this empirical relationship is not well understood. Some contend that these linkages allow for the transmission of shocks across countries, while others argue that countries that trade more with each other are similar in other ways and are thus subject to common shocks. Using data from France, this column examines the properties of international co-movement at the firm level. Even after controlling for common shocks, there is still substantial evidence of transmission of shocks through trade and multinational linkages. Furthermore, trade linkages matter more than multinational ones, especially when it comes to the aggregate impact.
Julian di Giovanni, Andrei Levchenko, Isabelle Méjean, 11 February 2016
Ju Hyun Pyun, Jong-Wha Lee, 21 March 2009
This column claims that bilateral trade interdependence reduces the probability of inter-state military conflict. Moreover, global trade openness lowers the probability of conflict with the bilateral trade partner by a larger magnitude than bilateral trade does alone.
Gabriel Felbermayr, Farid Toubal, 19 July 2008
This column introduces the use of Eurovision song contest scores as a measure of cultural proximity. Unlike other measures, such as common language or religion, Eurovision scores are asymmetric and time-varying, allowing estimates to distinguish between two potential channels through which cultural proximity might affect trade: trade costs and consumer preferences.