CATALYST OF BUSINESS CYCLE SYNCHRONIZATION IN EAST ASIA

Hui-Ying Sng, Liyu Dou () and Pradumna Bickram Rana ()
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Hui-Ying Sng: Division of Economics, School of Humanities and Social Sciences, Nanyang Technological University, Singapore
Pradumna Bickram Rana: #x2021;S. Rajaratnam School of International Studies, Nanyang Technology University, Singapore

The Singapore Economic Review (SER), 2017, vol. 62, issue 03, 703-719

Abstract: The essential question this paper seeks to answer is whether the business cycle co-movement in East Asia are fostered by internal bilateral trade within the region, specifically, intra-industry trade or by external forces like the influence of the world’s largest economy, namely, the United States. This paper examines the extent and robustness of the relationship between trade intensity and business cycle synchronization for nine East Asian countries in the period 1965–2008. Unlike previous studies which assume away the region’s concurrent connection with the rest of the world, in our regressions we control for both the US effect and the exchange rate co-movement in the region. We find that the coefficient estimates for intra-industry trade intensity remain robust and significant even after controlling for the US effect and the exchange rate co-movement. The findings confirm that regional intra-industry trade fosters business cycle correlations among countries in East Asia.

Keywords: Business cycle co-movement; trade integration; inter-industry trade; intra-industry trade; exchange rate co-movement; East Asia (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0217590818400064

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