Output Synchronization of the Indian Economy in the Post-reform Period

This article examines whether cyclical fluctuation in India’s output was synchronized with other major economies of the world in post-reform period. Using panel GMM estimation, it is established that in the post-reform period cyclical output of Indian economy shared a common trend with some of the advanced economies and the emerging market economies. The sources of such business cycle synchronization were found to be increased trade intensity, similarities in productive structure, similar monetary policy stance and events of major economic crises. This suggests that Indian economy cannot remain decoupled from major economic crises in the global economy and, therefore, Indian policymakers need to factor in global events in their policy response function.