Construction and analysis of common foreign trade cycle based on MS-VAR: An empirical study of global experience

Abstract

This paper proves the co-movement of foreign trade in different countries or areas which belong to ten economic regions by MS-VAR model. The studies show that trade crisis lags behind economic crisis and spreads from the core of the economic crisis to its periphery which is closely-related with it. The trade crisis corresponding to the US subprime crisis spreads faster than before, which has struck worldwide foreign trade. In order to get the main factors affecting trade crisis, the authors construct composite indices which are proxies of economic growth and price levels of internal and external regions. The results of logistic and linear panel models show that economic growth affects more to trade cycle than price level. The results of panel models with dummy variable of trade crisis show that the outside economic growth do bad to the recovery of internal foreign trade during trade crisis corresponding to Mexican peso crisis, the Asian financial crisis and the Russian debt crisis, while the opposite is true during the internet bubble burst and the US subprime crisis.