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Trade Integration and Business Cycle Synchronization in East Asia

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  • Kwanho Shin
  • Yunjong Wang

Abstract

As trade integration deepens in East Asia, it is expected that there will be closer links in business cycles among East Asian countries. Theoretically, however, increased trade can lead business cycles across trading partners to shift in either direction: while inter-industry trade resulting in higher specialization would induce less synchronization, intra-industry trade could overturn this tendency. By using the data for twelve Asian economies, this paper finds that intra-industry trade is the major channel through which business cycles become synchronized among Asian economies, although increased trade itself does not necessarily lead to close business cycle coherence. This result has important implications for the prospects of a currency union in the region.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0574.

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Date of creation: Mar 2003
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Handle: RePEc:dpr:wpaper:0574

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  1. Jean IMBS, 1998. "Fluctuations, Bilateral Trade and the Exchange Rate Regime," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9906, Université de Lausanne, Faculté des HEC, DEEP, revised Nov 1998.
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  3. Balassa, Bela & Bauwens, Luc, 1988. "The determinants of intra-European trade in manufactured goods," European Economic Review, Elsevier, vol. 32(7), pages 1421-1437, September.
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  16. Fidrmuc, Jarko, 2001. "The Endogeneity of optimum currency area criteria, intraindustry trade and EMU enlargement," BOFIT Discussion Papers 8/2001, Bank of Finland, Institute for Economies in Transition.
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  19. Jean Imbs, 2004. "Trade, Finance, Specialization, and Synchronization," The Review of Economics and Statistics, MIT Press, vol. 86(3), pages 723-734, August.
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