Does International Trade Really Lead To Business Cycle Synchronization?-A Panel Data Approach^*

In this paper we re-estimate the correlation between trade and business cycle synchronization. Different from other previous studies, we use long-run GDP and trade data and use the GDP cross-correlation index à la Cerqueira and Martins (Economics Letters, Vol. 102 (2009), pp. 106-108) rather than overtime cross-correlations. We find a positive impact of trade on business cycle synchronization particularly in the current wave of globalization, although the interwar period sees negative impacts. The current economic integration and currency unions also positively affect business cycle synchronization.