Trade integration and business cycle synchronization evidence from the experience of Arab countries

This paper revisits the empirical relationship between trade integration and business cycle synchronization, using panel data covering the entire world over the period 1995–2013 and a battery of alternative bilateral trade integration measures. Estimation results suggest that greater trade integration is associated with more synchronized business cycles. This result is fairly robust and holds up when possible endogeneity issues are taken into account. Among trade integration indicators considered, the bilateral trade intensity indicator exhibits a more robust relationship with the business cycle synchronization variable. The trade integration and business cycle synchronization relationship for Arab countries, however, is different from the full sample. The direction of the relationship is in fact the opposite. That is, greater trade integration among Arab country pairs is associated with less synchronized business cycles.

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