How Does Globalization Affect the Synchronization of Business Cycles?

18 Pages Posted: 16 Mar 2003

See all articles by M. Ayhan Kose

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics

Marco E. Terrones

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2003

Abstract

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.

Keywords: Macroeconomic Fluctuations, Trade and Financial Integration, International Transmission of Shocks, Cross-country Comovement of Output and Consumption

JEL Classification: E32, F42, F41

Suggested Citation

Kose, M. Ayhan and Prasad, Eswar S. and Terrones, Marco E., How Does Globalization Affect the Synchronization of Business Cycles? (January 2003). Available at SSRN: https://ssrn.com/abstract=383101

M. Ayhan Kose

World Bank

1818 H Street, NW
Washington, DC 20433
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Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Australian National University (ANU)

Canberra, Australian Capital Territory 2601
Australia

Eswar S. Prasad (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

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United States

HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

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Brookings Institution ( email )

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NBER ( email )

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IZA Institute of Labor Economics

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Germany

Marco E. Terrones

International Monetary Fund (IMF) ( email )

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Washington, DC 20431
United States
202-623-4329 (Phone)

HOME PAGE: http://imf.org/external/np/CV/AuthorCV.aspx?AuthID=171

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