Substantial evidence suggests that countries with stronger trade linkages have more synchro-
nized business cycles. The standard international business cycle framework cannot replicate this
finding, uncovering the trade-comovement puzzle. We show that under certain macro-level conditions but irrespective of the micro-level assumptions concerning trade the puzzle arises because
trade fails to substantially increase the correlation between each country's import penetration
ratio and the trade partner's technology shock. Within a large class of trade models, there
are three channels through which bilateral trade may increase business cycle synchronization.
Specifically, increased bilateral trade may (i) raise the correlation between each country's tech-
nology shocks, (ii) raise the correlation between each country's share of expenditure on domestic
goods, and (iii) raise the response of the domestic import penetration ratio to foreign technology
shocks. Empirical evidence strongly supports the first and second channels. We show that the
trade-comovement puzzle can be resolved if productivity shocks are more correlated between
country-pairs that trade more
