Developing Country Business Cycles: Characterizing the Cycle

Classical business cycles, following Burns and Mitchell (1946), can be defined as the sequential pattern of expansions and contractions in aggregate economic activity. Recently, Harding and Pagan (2002, 2006) have provided an econometric toolkit for the analysis of these cycles, and this has resulted in a recent surge in researchers using these methods to analyze developing country business cycles. However, the existing literature consists of diminutive samples, and the majority of the studies fail to consider the statistical significance of the concordance statistics. To address this shortfall, this paper examines the business cycle characteristics and synchronicity for thirty-two developing countries. Furthermore, the United States, United Kingdom, and Japan are included. This provides benchmarks upon which to compare the characteristics of the developing country cycles and also to examine the degree of synchronization between developed and developing countries. Significantly, this research reveals that business cycles of developing countries are not, as previously believed, significantly shorter than those of the developed countries. However, the amplitude of both expansion and contraction phases tends to be greater in the developing countries. Furthermore, a clear relationship is exhibited between the timing of business cycle fluctuations and periods of significant regional crises, such as the Asian financial crisis. However, the more specific timing of the onset of these fluctuations appears to be determined by country-specific factors. Moreover, there are no clear patterns of concordance either within regions or between developed and developing country business cycles.