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http://dx.doi.org/10.13106/jafeb.2020.vol7.no8.225

The Effect of Trade Integration on Business Cycle Synchronization in East Asia  

NGUYEN, Vinh Thi Hong (Faculty of International Economics, Banking University Ho Chi Minh City)
HOANG, Thuy Thi Thanh (Faculty of International Economics, Banking University Ho Chi Minh City)
NGUYEN, Sang Minh (Faculty of International Economics, Banking University Ho Chi Minh City)
Publication Information
The Journal of Asian Finance, Economics and Business / v.7, no.8, 2020 , pp. 225-231 More about this Journal
Abstract
The paper aims to investigate the impact of trade integration on business cycle synchronization for the East Asian countries during 2005- 2017 based on the endogeneity hypothesis of Optimum Currency Area criteria. We test the determinants of business cycles by calculating bilateral trade, financial integration, and business cycle synchronization. Applying the system Generalized Method of Moments for dynamic panel data models, the results show that business cycle synchronization is highly associated with trade and financial integration. These findings confirm the endogeneity hypothesis that more trade integration will mitigate asymmetric shocks, and have a positive impact on the business cycle synchronization. The increased trade intensity and financial linkage lead to more correlated business cycles in East Asia. Apart from trade and financial integration, the trade structure differential, monetary policy similarity also influence the business cycle comovement. The significantly negative impact of trade structure differential on business cycle synchronization suggests that countries with less similar structures are more likely to undergo asymmetric shocks. The results also indicate that monetary policy matters for output comovement. This study recommends that the East Asian countries should focus on bilateral trade as well as financial integration with each other to reap benefits from the integration process.
Keywords
Business Cycle Synchronization; Trade Integration; Optimum Currency Area; East Asia; Generalized Method of Moments;
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Times Cited By KSCI : 7  (Citation Analysis)
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