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Corresponding Author:
Lumengo Bonga-Bonga, Department of Economics and Econometrics, University of Johannesburg, South Africa

Coauthors:
Emilie Kinfack, Department of Economics and Econometrics University of Johannesburg South Africa

Trade Linkages and Business Cycle Co-Movement: Analysis of Trade between African Economies and their Main Trade Partners

Volume 73 - Issue 2, May 2020
(pp. 275-306)
JEL classification: C32, C51, F44
Keywords: Trade Linkages, GVAR Model, Business Cycle Synchronization, Africa

Abstract

This paper seeks to uncover what drives the nature of the link between trade linkages and business cycle synchronization by empirically assessing this link between African economies and their main trading partners, namely China, Europe and the United States (US). Contrary to past papers, this paper determines endogenously the magnitude of trade linkage by assessing how trade shocks are transmitted between Africa and its main trading partners in the periods before and after the 1990s. Moreover, the paper assesses the extent of business cycle synchronization between Africa and these trading partners during the same periods. The global vector autoregressive (GVAR) model and the Instantaneous Quasi Correlation (IQC) method are used to this end. The results of the empirical analysis show that not only the nature of trade but also the mode of trade financing or trade settlement should matter in determining the relationship between trade linkages and business cycle synchronisation.


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