How Does Globalization Affect the Synchronization of Business Cycles?

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Abstract
The phenomenon of globalization , which re- fers to the rising trade arid financial integration of the world economy, has gathered steam in recent decades. The grov/th rate of world trade has been greater than that of world output in almost all years since I960, and the cumulative increase in the volume of world trade is almost three times larger than that of world output over this period. A more dramatic element in the process of globalization has been the surge in cross-border capital flows over tlie last two de- cades. Since the eariy 198O's, gross capital flows have jumped from less than 5 percent to approximately 20 percent of GDP for advanced countries. For emerging markets, gross capital flows have increased almost fourfold over the same period and now account for roughly 5 percent of GDP in these economies.' What is the impact of globalization on the synchronization of business cycles across coun- tries? In this paper, we attempt to address this question by systematicall y examining the im- pact of increased trade and financial integration on intemational business-cycle comovements. In particular, we analyzi^ the pattems of cor- relations for industrial as well as developing countries within a unified empirical framework. We also examine the effects of different aspects of globalization on output as well as consump- tion comovement across countries.

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