Decoupling Asia revisited

Abstract

The paper reexamines the issue of decoupling. By focusing on the recent trends of international trade and financial linkages in Asia, the paper reviews the evolution of regional business cycle synchronization and investigates macroeconomic interdependence between emerging East Asia and G3 economies. A special focus is given to the People’s Republic of China (PRC)’s role in changing dynamics of the regional production networks and its implications for the region’s business cycle. By employing a vector auto-regression (VAR) model, the paper finds that the US economy remains an important source of external demand shock for the regional economy, although the impact of the Chinese economy has increased sharply.