Abstract
ABSTRACT This paper constructs a bilateral production integration (BPI) index to evaluate the closeness of the production relationship between countries under the perspective of fragmented international supply chains. It also verifies the correlations between the BPI index and business cycle synchronization. Empirical test results show that the constructed BPI index has a significant impact on business cycle synchronization, confirming that countries with closer production relations tend to have a consistent business cycle. Compared with the index in previous literature, this index has better statistical properties, overcomes endogeneity problems and passes robustness tests.
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