Global trade and GDP comovement

Abstract

This paper revisits the relationship between trade and cross-country GDP correlation for 134 countries from 1970 to 2009. We introduce two notions of trade linkages: (i) direct bilateral trade index and (ii) common exposure to ”third” countries capturing the role of trade networks. Both are economically and statistically associated with GDP correlation, suggesting an indirect additional channel through which GDP fluctuations propagate through trade linkages. Moreover, high income countries become more synchronized when the content of their trade is tilted toward intermediate inputs while trade in final goods is key for lower income countries. Finally, we present evidence of an increase in the trade comovement slope over the last two decades, which may reflect the increase of the density of the international trade network.