India in the globalized economy : Growth spillovers & business cycle synchronization

In recent decades, in the wake of accelerated globalization, the issue of output coupling/decoupling has assumed considerable importance in academic as well as in policy debates. Special attention has been focussed on the following four issues (i) whether economies are getting increasingly synchronized in their cyclical behaviour and in particular whether EMEs are getting synchronized with the advanced group of countries (or otherwise) and/or among themselves ? (ii) whether similar synchronization is also evident in the growth profiles of EMEs and advanced economies ? (iii) what are the main factors driving this two types of synchronization ? and (iv) are the factors driving growth synchronization different from those driving business cycle co-movements? This is a single-country study which examines the decoupling issue from the perspective of the Indian economy over a fairly long time span viz. 1961–2008, dividing the same into three sub-periods characterized by relative insularity (1961–1978), restricted globalization (1979–1993) and full-scale globalization (1994–2008). Among the important potential determinants of co-movements suggested by the available literature are inter-industry and intra-industry trade intensities, co-ordination of fiscal and monetary policy, financial integration etc. Our key finding is that the economic determinants for India’s cyclical synchronization differ across short (16–32 months) and medium cycles (32–64 months) and vis-a-vis growth spillovers.