Authors
Publication Date
JEL Classification
E20
E25
Key Words
Related Topics
Business Cycle
Business Cycle World
Globalization
Growth
International Trade
Motivated by the increased importance of trade between industrialized and less-developed countries, we build a DSGE model featuring comparative advantage and inter-industry trade to analyze business cycle dynamics. We show that productivity shocks lead to shifts in the relative demand of exporting and import-competing sectors, implying an important role for the mobility of workers across sectors. If workers are very mobile then the aggregate implications of the two-sector model are very similar to a one-sector model. If workers are very immobile then the two-sector model features smaller responses in GDP to domestic shocks but larger responses to foreign shocks, implying larger comovement of GDP across countries.
