The European Journal of Comparative Economics

ISSN: 1824-2979

EJCE Year: 2012, April. Volume: 9 - Issue: 1

The Impact of Trade Integration on Business Cycle Synchronization for Mercosur Countries

by Francesco Grigoli

Start page: 103 - End page: 131

Keywords: Trade Integration, Business Cycle Synchronization, Mercosur

Jel code: E32; F15

Abstract:

This paper intends to evaluate empirically the impact of reduced trade barriers and increased trade on the synchronization of business cycles. It draws on Frankel and Rose (1998) who reassessed the Mundellian criteria on Optimum Currency Areas (OCAs) and considered their application to be untenable given that trade integration and cycle synchronization may be endogenous. This research aims to test this hypothesis for Mercosur countries. Using a quarterly panel dataset spanning the members since the establishment of the free trade area (FTA) in 1991 until 2008, the empirical findings indicate a positive effect, implying intra-industry trade

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