The Synchronization of Business Cycles among Iran’s Trade Partners

Abstract

In recent years, investigating synchronization of business cycles among countries, after increasing integration of global economies, has been attracted more attention of policy makers and researchers. Perhaps an unknown origin of such similarities, as an open question, is the main reason of these interests. So, with regard to the mentioned question, the aim of this paper is to investigate some probably determinants of synchronization among Iran's main trade partners. Therefore, in the first step, in order to measure business cycles, some parametric and non-parametric techniques are used. Then, applying several criteria, the degree of synchronization is determined. After these two steps, employing IV-GLS and QR estimators, the relationship between business cycles and trade intensity index, as a possible channel of synchronization, has considered. The result shows that an increase in trade intensity index increases business cycle synchronization for all 21 sample countries. Also, this result remained almost unchanged when we divided sample into some subsamples. It is worthy to note that due to the endogeneity of independent variable, the gravity equation and Helpman theorem(1981) are employed. In these equations, some variables such as GDP, common borders and distance had significant effects on trade intensity and hence on business cycles