Abstract
This paper investigates the role of global value chain (GVC) trade in explaining bilateral business cycle synchronization between China and the Belt and Road countries in the context of prevailing GVC specialization. We construct two indicators of GVC trade that capture the third country effect within GVCs by using the ADB-MRIO2021 database. The empirical findings identify a positive and strong correlation of GVC trade with business cycle synchronization, and the channel through which GVC trade transmits the business cycle is stronger than that of gross trade. In addition, GVC trade in both manufacturing and service industries is significantly correlated with economic synchronization. Moreover, lower similarity in industrial structure strengthens the positive effect of GVC trade on business cycle synchronization. The findings demonstrate China's demand-and-supply spillovers in the positive transmission of business cycle synchronization across the Belt and Road countries.
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