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Emerging Asia: Decoupling or Recoupling

Emerging Asia: Decoupling or Recoupling In this paper, we investigate the degree of real economic interdependence between emerging East Asian and major industrial countries to shed light on the heated debate over the ‘decoupling’ of emerging East Asia. We first document the evolution of macroeconomic interdependence for emerging East Asian economies through changing trade and financial linkages at both the regional and global levels. Then, by employing a panel vector autoregression (VAR) model, we estimate the degree of real economic interdependence before and after the 1997/98 Asian financial crisis. Empirical findings show that real economic interdependence increased significantly in the post‐crisis period, suggesting ‘recoupling’, rather than decoupling, in recent years. Output shocks from major industrial countries have a significant positive effect on emerging East Asian economies. More interestingly, the reverse is also true. Output shocks from emerging East Asia (and China) have a significant positive effect on output in major industrial countries. The result suggests that macroeconomic interdependence between emerging East Asia and industrial countries have become ‘bi‐directional’, defying the traditional notion of the ‘North–South relationship’ as one of ‘uni‐directional’ dependence. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The World Economy Wiley

Emerging Asia: Decoupling or Recoupling

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References (39)

Publisher
Wiley
Copyright
© 2011 Blackwell Publishing Ltd
ISSN
0378-5920
eISSN
1467-9701
DOI
10.1111/j.1467-9701.2010.01280.x
Publisher site
See Article on Publisher Site

Abstract

In this paper, we investigate the degree of real economic interdependence between emerging East Asian and major industrial countries to shed light on the heated debate over the ‘decoupling’ of emerging East Asia. We first document the evolution of macroeconomic interdependence for emerging East Asian economies through changing trade and financial linkages at both the regional and global levels. Then, by employing a panel vector autoregression (VAR) model, we estimate the degree of real economic interdependence before and after the 1997/98 Asian financial crisis. Empirical findings show that real economic interdependence increased significantly in the post‐crisis period, suggesting ‘recoupling’, rather than decoupling, in recent years. Output shocks from major industrial countries have a significant positive effect on emerging East Asian economies. More interestingly, the reverse is also true. Output shocks from emerging East Asia (and China) have a significant positive effect on output in major industrial countries. The result suggests that macroeconomic interdependence between emerging East Asia and industrial countries have become ‘bi‐directional’, defying the traditional notion of the ‘North–South relationship’ as one of ‘uni‐directional’ dependence.

Journal

The World EconomyWiley

Published: Jan 1, 2011

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