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Business cycle synchronization in the Asean: Degree and driving forces

By Nhu Dinh Hiep (VNP 22)

Supervisor: Dr. Vo Hong Duc

Abstract

This study is conducted to evaluate the degree of the business cycle synchronization in the 10 ASEAN economies from 2000-2016. To overcome the limitation of the old measuring technique and data constraints, this study makes use of the new measure of business cycle synchronization using Abiad, et al. (2013)’s instantaneous quasi-correlation measure. The calculation using new measure signifies that the degree of business cycle synchronization in ASEAN is moderate from 2000-2016. The level of synchronization reaches to the highest points in 2009, which was the time when the effects of global financial crisis took place. Correlations of business cycles among ASEAN-5 members are generally higher than among the CLMV group, or among the whole region. Additionally, the regression-based analysis from
this study also presents some key findings about the driving forces of the synchronization in the ASEAN. Bilateral trade intensity and the similarity of industrial sectors are positively correlated with the synchronization of business cycles. Their explaining powers are robust and consistent across models. The mutual capital control is likely to weaken the degree of synchronization, which means that financial integration is likely to be a positive determinants of synchronization. Capital control is not significant in OLS estimate, fairly significant in Random-effects model, but highly significant in FGLS model.

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