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Dongyeol Lee
Through the 2000s, Korea’s export and import linkages to advanced and emerging markets increased significantly. At the same time, the correlation of output growth between Korea and these economies rose. This paper investigates the nature of the link between trade linkages and the comovement of international business cycles (BC) using Korean industry-level domestic and international input-output data. The results suggest that, at the industry-level, higher export linkages lead to a larger positive GDP growth comovement, while higher import linkages lead to higher negative employment growth comovement. Furthermore, the decomposition of aggregate BC comovement shows that the increase in trade with China has contributed the most to aggregate BC comovement, while the impact of trade linkages on BC comovement is propagated domestically via vertical linkages. These findings suggest that the Korean economy can be significantly affected by a few countries that are highly linked through trade to Korea and/or a few industries that are highly interconnected to other industries.
Dongyeol Lee

linkages for the top five manufacturing industries making the highest contribution to growth. Downstream linkages are high in these industries relative to overall manufacturing, while upstream linkages are relatively high in chemicals and basic metals. Similar to overall manufacturing, both upstream and downstream linkages were stable over the 2000s in most individual industries. Figure 6. Vertical Linkage: Top 5 Manufacturing Industries C. International Business Cycle Comovement This subsection studies the descriptive correlations in GDP growth and in

Mr. Ayhan Kose, Mr. Eswar S Prasad, and Mr. Marco Terrones
This paper examines the impact of rising trade and financial integration on international business cycle comovement among a large group of industrial and developing countries. The results provide at best limited support for the conventional wisdom that globalization has increased the degree of synchronization of business cycles. The evidence that trade and financial integration enhance global spillovers of macroeconomic fluctuations is stronger for industrial countries. One striking result is that, on average, cross-country consumption correlations have not increased in the 1990s, precisely when financial integration would have been expected to result in better risk-sharing opportunities, especially for developing countries.
Mr. Ayhan Kose, Mr. Eswar S Prasad, and Mr. Marco Terrones

, capital flows have jumped from less than 5 percent to approximately 20 percent of GDP for advanced countries. For emerging markets, capital flows have increased almost fourfold over the same period, and now account for roughly 5 percent of GDP in these economies. 2 What is the impact of these changes on the synchronization of business cycles across countries? In this paper, we attempt to address this question by systematically examining the impact of increased trade and financial integration on international business cycle comovements. In particular, we analyze the

Kei-Mu Yi and Mr. Ayhan Kose
Recent empirical research finds that pairs of countries with stronger trade linkages tend to have more highly correlated business cycles. We assess whether the standard international business cycle framework can replicate this intuitive result. We employ a three-country model with transportation costs. We simulate the effects of increased goods market integration under two asset market structures, complete markets and international financial autarky. Our main finding is that under both asset market structures the model can generate stronger correlations for pairs of countries that trade more, but the increased correlation falls far short of the empirical findings. Even when we control for the fact that most country-pairs are small with respect to the rest of the world, the model continues to fall short. We also conduct additional simulations that allow for increased trade with the third country or increased TFP shock comovement to affect the country pair's business cycle comovement. These simulations are helpful in highlighting channels that could narrow the gap between the empirical findings and the predictions of the model.
Dongyeol Lee

Front Matter Page Asia and Pacific Department Contents I. Introduction II. Related Literature III. Data and Descriptive Statistics A. Data B. Trade and Vertical Linkages C. International Business Cycle Comovement IV. Trade Linkages and International Business Cycle Comovement A. Empirical Specification B. Estimation Results C. Decomposition of Aggregate Business Cycle Correlation V. Concluding Remarkst Reference Figures Figure 1. Trade and Vertical Linkage Figure 2. Trade Linkage: Sectoral Figure 3. Trade

Dongyeol Lee

and openness to trade: A reassessment . Economia , 9 ( 1 ), pp. 105 – 152 . di Giovanni , J. and Levchenko , A. A. , 2010 . Putting the parts together: trade, vertical linkages, and business cycle comovement . American Economic Journal: Macroeconomics , 2 ( 2 ), pp. 95 – 124 . di Giovanni , J. , Levchenko , A. A. and Mejean , I. , 2017 . Large firms and international business cycle comovement . American Economic Review , 107 ( 5 ), pp. 598 – 602 . di Giovanni , J. , Levchenko , A. A. and Mejean , I. 2018

International Monetary Fund. Asia and Pacific Dept

. 95 – 124 . di Giovanni , J. , Levchenko , A. A. and Mejean , I. , 2017 , Large Firms and International Business Cycle Comovement . American Economic Review , 107 ( 5 ), pp. 598 – 602 . di Giovanni , J. , Levchenko , A. A. , and Mejean , I. 2018 , The micro origins of international business-Cycle Comovement . American Economic Review , 108 ( 1 ), pp. 82 – 108 . Foerster , A. T. , Sarte , P.D.G. and Watson , M. W. , 2011 , Sectoral Versus Aggregate Shocks: A Structural Factor Analysis of Industrial Production

Dongyeol Lee
In the last two decades, manufacturing industries in Korea have become more concentrated, and interconnectedness across industries and to foreign countries has risen via vertical relationships and trade linkages. This paper investigates the transmission of economic shocks in such a highly concentrated and interconnected structure, focusing on the role of vertical and trade linkages and using the industry-level international input-output data. The results suggest that, first, the role of vertical and trade linkages in propagating growth shocks from both domestic sources and external sources is important. Second, the growth impact of a few key sources of economic shocks is relatively large. These findings highlight that economic shocks in a few key industries and/or major trading partners that are transmitted through vertical and trade linkages can lead to large swings in the overall economy. This paper contributes to the understanding of the potential interactions between the industrial structure and economic growth and stability.