How Does Globalization Affect the Synchronization of Business Cycles?

By Ayhan Kose, Eswar S. Prasad, Marco E. Terrones. Social Science Research Network, 2003

524 citations recorded by the source corpus.

This paper examines the impact of rising trade and financial integration on international business cycle comovement among a large group of industrial and developing countries. The results provide at best limited support for the conventional wisdom that globalization has increased the degree of synchronization of business cycles. The evidence that trade and financial integration enhance global spillovers of macroeconomic fluctuations is mostly limited to industrial countries. One striking result is that, on average, cross-country consumption correlations have not increased in the 1990s, precisely when financial integration would have been expected to result in better risk-sharing opportunities, especially for developing countries.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/26c3037e873aa1c10cadf0f7dfde46ed07605e91

Citations in the corpus

• Boom or Gloom? Examining the Dutch Disease in Two-Speed Economies (2014, unknown): “Kose et al. (2003) and Mumtaz et al. (2011) are more recent examples, while Stock and Watson (2005) provide a brief overview of the use of this type of models in economics.”
• Sieve Estimation of Time-Varying Panel Data Models With Latent Structures (2019, unknown): “Although macroeconomists have some consensus that globalization leads to the synchronization of business cycles across countries (Kose, Prasad, and Terrones 2003), it is unrealistic to assume all the countries share the same trend.”
• Business Cycle Synchronization in the Enlarged EU (2008, unknown): “…countries tend to have more volatile cycles than large 11 See, for example, Gregory et al. (1997), Stock and Watson (1998), Forni and Reichlin (1998), Gregory and Head (1999), Forni et al. (2000), Kose et al. (2003), Monfort et al. (2003), Helbling and Bayoumi (2003) and Giannone et al. (2003).”
• Understanding the Evolution of World Business Cycles (2005, unknown): “The results by Kose, Prasad, and Terrones (2003) suggest that both trade and financial linkages have a positive impact on cross-country output and consumption correlations.”
• Understanding Changes in International Business Cycle Dynamics (2005, unknown): “This approach has been widely used in the international fluctuations literature; recent contributions include Kose, Otrok, and Whiteman (2001), Kose, Prasad, and Terrones (2003), Harvey and Carvalho (2002), Luginbuhl and Koopman (2003), Monfort, Renne, Rüffer, and Vitale (2002), and Justiano (2004).”
• Stock market synchronization and monetary integration (2011, unknown): “Imbs (2004, 2006) and Kose et al. (2003) show that financial integration impacts positively on business cycle comovements.”
• Effects of Financial Globalization on Developing Countries: Some Empirical Evidence (2003, unknown): “Interestingly, there is 23 This subsection draws heavily on Kose, Prasad, and Terrones (2003a).”