Regional Integration and Decoupling in the Asia Pacific: A Bayesian Panel VAR Approach

Sharada Davidson

IMF Economic Review, 2022, vol. 70, issue 4, No 5, 773-807

Abstract: Abstract Policymakers have been debating for over a decade whether Asia is decoupling from the USA. Increasingly, deepening regional integration is cited as a possible driver of this decoupling. Using large Bayesian Panel Vector Autoregressions, estimated over different subperiods, we jointly examine bilateral macro-financial interdependencies between Asia Pacific countries and between each Asia Pacific country and the USA. We uncover no evidence of decoupling. Instead, we find that both global and regional interdependencies deepened following the Asian financial crisis, before receding after the Global financial crisis. We also show that while US shocks are important, attention should also be devoted to regional shocks which play a large role in Asia Pacific countries across all subperiods considered. Our results also suggest that there have been shifts in the relative importance of different transmission channels over time. Following the Asian financial crisis, as regional interdependencies deepened, US financial shocks began to play a larger role than US macroeconomic shocks. These results support the view that rising intra-regional trade contributed to a fall in the importance of US macroeconomic shocks. They are also consistent with research suggesting that strong, common global financial linkages increase the synchronization of Asian regional business cycles.

Keywords: Regional integration; Decoupling; Economic fluctuations; Stochastic search variable selection; Bayesian panel VAR (search for similar items in EconPapers)
JEL-codes: C11 C33 E32 F15 F36 F62 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1057/s41308-022-00174-8

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