| HBS Working Paper Series
Medium Term Business Cycles in Developing Countries
We build a two country asymmetric DSGE model with two features: (i) endogenous and slow diffusion of technologies from the developed to the developing country, and (ii) adjustment costs to investment flows. We calibrate the model to match the Mexico-U.S. trade and FDI flows. The model is able to explain the following stylized facts: (i) U.S. and Mexican output co-move more than consumption; (ii) U.S. shocks have a larger effect on Mexico than in the U.S.; (iii) U.S. business cycles lead over medium term fluctuations in Mexico; (iv) Mexican consumption is more volatile than output.
Keywords: Business Cycles;
Developing Countries and Economies;
Foreign Direct Investment;
Comin, Diego A., Norman Loayza, Farooq Pasha, and Luis Serven. "Medium Term Business Cycles in Developing Countries." Harvard Business School Working Paper, No. 10–029, October 2009. (Revise and resubmit at the American Economic Journal: Macroeconomics.)