خلاصة:
One of the basic tenets in recent international trade literature is about the effect of trade integration on business cycle synchronization (BCS) among trading countries. The objective of this paper is to explore the main determinants of business cycle synchronization, with emphasis on trade integration. To this end, we have specified two simultaneous regression equations which were estimated by weighted least squares method. The sample used data for the Organization of Islamic Countries for two consecutive periods; 1980-89 and 1990-2005.The empirical result showed that trade integration is significantly the major factor of business cycle synchronization in Islamic countries, particularly during 1990-2005 period. In addition, it was shown that similarities in both fiscal and monetary policies as well as economics structures have had considerable influence on their BCS.
ملخص الجهاز:
The empirical result showed that trade integration is significantly the major factor of business cycle synchronization in Islamic countries, particularly during 1990-2005 period.
In the case of inter-industry trade based on comparative advantage, which leads each country to specialize in different industries, then the net effect of trade integration on the BCS may turn out to be negative (Eichengreen, 1992 and Krugman, 1993).
In sum, it can be argued that there is a consensus that strong trade relations and similarities in economic structures as well as monetary and fiscal policies, reinforces the process of BCS between two countries.
3. MODEL SPECIFICATION Based on the conceptual discussion presented above, the general form of the business cycle synchronization model is presented by the two following equations: BSC ij = α 0 + α 1 FSS ij +α 2 MSS ij + α 3 ESI ij + α 4 IITij + α 5TII ij + ε t (1) where BSCij represents the de-trended BCS between countries i and j, FSSij is an index of similarity in fiscal policies of i and j, MSSij is an index of similarity in monetary policies of i and j, ESIij indicates the similarity in economic structure of the two countries, IITij is an index of intra-industry trade between the two countries and TIIij represents the trade integration index between them.
Thus, it can be concluded that trade integration has had a positive and significant effect on business cycle synchronization in Islamic countries.