This paper analyses the extent to which financial integration impacts the manner in which terms of trade affct business cycles in emerging economies. Using a small open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle...

Positive correlation between intermediate goods trade and business cycle comovement raises the question of causality. Existing theories propose the direction from trade to comovement, but don't explain positive correlation of trade with TFP comovement, also in the data. My model predicts both...