Macroeconomic Interdependence in East Asia

Nagayasu, Jun (2010): Macroeconomic Interdependence in East Asia. Published in: Japan and the World Economy , Vol. 22, (30 November 2010): pp. 219-227.

Abstract

This paper analyzes macroeconomic interdependence among 10 Asian economies. In this connection, we decompose their macroeconomic activities (real GDP) into common and country-specific components using the Bai-Ng method (2004). Our results suggest first that both components are nonstationary and have permanent effects on their overall economy. Second, we find the relative importance of common factors in all countries in terms of their contribution to variations in real GDP. But evidence is also obtained of country-specific effects becoming increasingly important in countries like China in recent years. Therefore, if, for example, China is expected to grow at a fast pace in future, our findings imply that creation of a regional monetary union of these 10 countries needs to be held back until the Chinese economy has become more dominant in the region.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asian economic integration, factor models, common and factors
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance

References

Ando, M., 2006. Fragmentation and vertical intra-industry trade in East Asia. North American Journal of Economics and Finance 17, 257-281.

Bai, J., Ng, S., 2002. Determining the number of factors in approximate factor models. Econometrica 70(1), 191-221.

Bai, J., Ng, S., 2004. A Panic attack on unit roots and cointegration. Econometrica 72(4), 1127-1177.

Baxter, M., Kouparitsas, M. A., 2005. Determinants of business cycle movements: a robust analysis. Journal of Monetary Economics 52(1), 113-157.

Bayoumi, T., Eichengreen, B., Mauro, P., 2000. On regional monetary arrangements for ASEAN. Journal of the Japanese and International Economies 14, 121-148.

Chey, H-K., 2009. A political economic critique on the theory of optimum currency areas, and implications for East Asia, World Economy 32, 1685-1705.

Crosby, M., 2003. Business cycle correlation in Asia-Pacific. Economic Letters 80, 35-44.

Frankel, J. A., Rose, A. K., 1998. The endogeneity of the optimum currency area criteria. Economic Journal 108, 1009-1025.

Galesi, A., Sgherri, S., 2009. Regional financial spillovers across Europe: a global VAR analysis. IMF Working Paper WP/09/23.

Gregory, A. W., Hansen, B. E., 1996. Residual-based tests for cointegration in models with regime shifts. Journal of Econometrics 70, 99-126.

Imbs, J., 2004. Trade, finance, specialization and synchronization. Review of Economics and Statistics 86(3), 723-734.

Kao, C., 1999. Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics 90, 1-44.

Kao, C., Chiang, M. H., 2000. On the estimation and inference of a cointegrated regression in panel data. Advances in Econometrics 15, 179-222.

Kose, M. A., Otrok, C., Whiteman, C. H., 2003. International business cycles: world, region, and country-specific factors. American Economic Review 93(4), 1216-1239.

Kose, M. A., Otrok, C., Prasad, E. S., 2008. Global business cycles: convergence or decoupling? NBER Working Paper No. 14292.

Kose, M. A., Otrok, C., Whiteman, C. H., 2008. Understanding the evolution of world business cycles. Journal of International Economics 75, 110-130.

Levin, A, Lin, C-F., 1992. Unit root tests in panel data: Asymptotic and finite-sample properties. Discussion Paper 92-23, University of California, San Diego.

Moneta, Fabio and Rasmus Ruffer, 2009, Business cycle synchronization in East Asia, Journal of Asian Economics 20, 1-12.

Park, Y. C., Shin, K., 2009. Economic integration and changes in the business cycle in East Asia: is the region decoupling from the rest of the world? Asian Economic Papers 8(1), 107-140.

Rand, J., Tarp, F., 2002. Business cycles in developing countries: are they different? World Development 30, 2071-2088.

Sato, K., Zhang, Z., 2006. Real output co-movements in East Asia: any evidence for a Monetary Union? World Economy, 1671-1689.

Selover, D. D., 1999. International interdependence and business cycle transmission in ASEAN. Journal of the Japanese and International Economies 13, 230-253.

Selover, D. D., 2004. International co-movements and business cycle transmission between Korea and Japan. Journal of the Japanese and International Economies 18, 57-83.

Shin, K., Wang, Y., 2003. Trade integration and business cycle synchronization in East Asia. Asian Economic Papers 2(3), 1-20.

Stockman, A., 1988. Sectoral and national aggregate disturbances to industrial output in seven European countries. Journal of Monetary Economics 21, 387-409.

Zhang, Z., Sato, K., McAleer, M., 2004. Is a monetary union feasible for Asia? Applied Economics 36, 1031-1043.

Weber, E., 2009. Common and uncommon sources of growth in Asia Pacific. Journal of the Japanese and International Economies 22, 20-36.

Westerlund, J., 2006. Testing for panel cointegration with multiple structural breaks. Oxford Bulletin of Economics and Statistics 68(1), 101-132.

Wu, L-L., Chen, S-L., Lee, H. Y.2001. Are current account deficits sustainable? Evidence from panel cointegration. Economics Letters 72, 219-224.