Co-movement of business cycles in the Maghreb : does the trade matter?

Mercredi | 2011-01-12

Aram BELHADJ – Comlanvi Jude EGGOH

Over the past two decades, the Maghreb Countries have initiated a liberalization process characterized by increasing trade flows and they have strengthened economic and financial linkages between their economies.In this paper, we demonstrate how co-movements of outputs would respond to this integration process. The nature of this relation seems to be important for these countries because the decision to join an economic and monetary union would depend on how the union affects trade and co-movements.To this end, we estimate a panel model describing the relationship between trade intensity and business cycles correlation during the period 1980-2005. We use three estimation techniques: pooled OLS, fixed vs. random effects as well as 2SLS estimations. Thereafter, we add to this relationship intra-industry trade as a variable describing the similarity of trade structure.Our results suggest that trade intensity may help to harmonize business cycles in these countries while intra-industry trade causes a reverse effect. Many lessons are thereby learned.