The Impact of the US Economy on the Asia-Pacific Region — Does It Matter?

This chapter continues the discussion of real and financial linkages in Chapter 5. From the viewpoint of world political economic development, the United States plays a very important role in the world, especially in the emerging Asia, through its IT industry. We first confirm the interdependence of the United States and the Asia-Pacific region by examining the regional trade and investment relationship between the United States and the Asia-Pacific region. We then explore the real linkage through trade and investment and the financial linkage through stock markets. These linkages are strengthened by the recent information technology (IT) revolution. The pairwise and vector autoregression (VAR) are used to test the Granger causality of real linkage in terms of GDP and the financial linkage in terms of the daily stock price indices among these countries. Impulse response functions and variance decomposition from VAR are illustrated. Our results show that there is no significant unidirectional causality from the US GDP to those of Japan, Taiwan, Korea, and China. But the slump in the US stock price indices will cause the stock market recession in Japan, Korea, and Taiwan, but not in China. Thus, the US financial condition plays an important role in these Asian countries through financial linkages.