Export-led recoveries in small open industrialized economies

Export-Led Recoveries in Small Open

Industrialized Economies

Eurilt on Araujo

April, 2001

A bst r act

T his paper studies t he role of Vertical Specializat ion-based t rade and foreign damand push as element s capable of explaining export -led recoveries in small open indust rialized economies.

T he empirical evidence on export -led recoveries is reviewed. Dat a supporting the growing importance of vert ical specializat ion for inter-nat ional t rade are present ed.

I compare the performance of two versions of a small open economy model, calibrat ed to mimic Canadian Business Cycles. T he …rst one is based upon Schmit t -Grohe(1998). T he second incorporates Vertical-Specialization-based t rade.

I show that an art i…cial economy feat uring Vert ical-Specialization-based t rade in conj unct ion wit h an exogenous AR(2) process for for-eign out put displays improved impulse responses t o a forfor-eign output shock and is able t o mimic the cont ribut ion of Canadian export s t o out put growt h during economic recoveries.

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^4` Dpeohu/ Vwhyh hw1 do1+4<<<,1 H{sruw Surprwlrq/ Ohduqlqj e| grlqj dqg Jurzwk1 Mrxuqdo ri Hfrqrplf G|qdplfv dqg Frqwuro 56= :7:0::51

^5` Ehwwv/ Fdurolqh dqg Nhkrh/ Wlprwk|+4<<<,1 Wudgdelolw| ri Jrrgv dqg Uhdo H{fkdqjh Udwh Ioxfwxdwlrqv1 Pdqxvfulsw1

^6` Jdeoh/ Mhuh| dqg Sudvdg/ Hvzdu+4<<:,1 Lqwhuqdwlrqdo Hylghqfh rq wkh Ghwhuplqdqwv ri Wudgh G|qdplfv LPI ZrunlqjSdshu <:24:51

^7` Kxdqj/ Nhylq dqg Olx/ ]khqj+5333,1 Yhuwlfdo Lqwhuqdwlrqdo Wudgh dv d Prqhwdu| Wudqvplvvlrq Phfkdqlvp lq dq Rshq Hfrqrp|1 Xqlyhuvlw| ri Txhehf ZrunlqjSdshu 43:1

^8` Kxpphov/ Gdylg hw do1+4<<;,1 Yhuwlfdo Vshfldol}dwlrq dqg wkh Fkdqjlqj Qdwxuh ri Zruog Wudgh1 IUEQ\ Hfrqrplf Srolf| Uhylhz = :<0<<1

^9` Kxpphov/ Gdylg hw do1+5333,1 Wkh Qdwxuh dqg Jurzwk ri Yhuwlfdo Vsh0 fldol}dwlrq lq Zruog Wudgh1 Pdqxvfulsw1

^;` Vhqkdgml/ Deghokdn+4<<;,1 G|qdplfv ri wkh Wudgh Edodqfh dqg wkh Whupv ri Wudgh lq OGFv= wkh V0fxuyh1 Mrxuqdo ri Lqwhuqdwlrqdo Hfr0 qrplfv 79=43804641

0 20 40 60 80 100 120 140 -0.1

-0.05 0 0.05 0.1

Comovement US gdp vs CANADA

gdp CAN

US CAN

0 20 40 60 80 100 120 140

-0.1 -0.05 0 0.05 0.1

exp CAN

US CAN

0 20 40 60 80 100 120 140

-0.2 -0.1 0 0.1 0.2

imp CAN

time

US CAN

0 5 10 15 -0.2

0 0.2 0.4 0.6 0.8

gdp

Y

0 5 10 15

-1 -0.5 0 0.5 1 1.5

Pm/Px

q

0 5 10 15

-0.5 0 0.5 1 1.5

Exp/gdp

exp

time

0 5 10 15

-0.5 0 0.5 1 1.5 2

Imp/gdp

imp

time

0 5 10 15 -0.02

0 0.02 0.04 0.06

G

D

P

Impulse Response

0 5 10 15

-0.1 -0.08 -0.06 -0.04 -0.02

T

O

T

Impulse Response

0 5 10 15

-0.05 0 0.05 0.1 0.15 0.2 0.25 0.3

time

E

xp

o

rt

s

0 5 10 15

-0.01 -0.005 0 0.005 0.01

time

Im

p

o

rt

s

0 5 10 15 -0.02

-0.01 0 0.01 0.02 0.03 0.04

G

D

P

Impulse Response

0 5 10 15

-0.08 -0.07 -0.06 -0.05 -0.04 -0.03 -0.02

T

O

T

Impulse Response

0 5 10 15

-0.1 0 0.1 0.2 0.3 0.4

time

E

xp

o

rt

s

0 5 10 15

0.03 0.04 0.05 0.06 0.07 0.08

time

Im

p

o

rt

s

0 5 10 15 -0.02

0 0.02 0.04 0.06 0.08 0.1

G

D

P

Impulse Response

0 5 10 15

-0.14 -0.12 -0.1 -0.08 -0.06 -0.04

p

M

/p

X

Impulse Response

0 5 10 15

-0.1 0 0.1 0.2 0.3 0.4

time

E

xp

o

rt

s

0 5 10 15

-0.05 0 0.05 0.1 0.15

time

Im

p

o

rt

s

0 5 10 15 -0.02 0 0.02 0.04 0.06 G D P Impulse Response

0 5 10 15

-0.1 -0.09 -0.08 -0.07 -0.06 -0.05 -0.04 -0.03 p M /p X Impulse Response

0 5 10 15

-0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 time E xp o rt s

0 5 10 15

0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 time Im p o rt s

0 5 10 15 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 G D P Impulse Response

0 5 10 15

-0.08 -0.07 -0.06 -0.05 -0.04 -0.03 -0.02 p M /p X Impulse Response

0 5 10 15

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 time E xp o rt s

0 5 10 15

0.1 0.2 0.3 0.4 0.5 time Im p o rt s