Deepening Interdependence or Decoupling Hypothesis In East Asia through Trade Transmission

“Decoupling” refers to the divergence of business cycles among different countries and “Re-coupling” corresponds to convergence. “Decoupling” is just a fancy word for “separation”. The aim of this study is to discover whether there has been decoupling or convergence of business cycles through the trade channel. As trade integration increased among Asian countries business cycle synchronization among these countries was expected to increase through trade transmission. Theoretically however increased trade can lead to business cycles synchronization either rising or falling. Inter-industry trade resulting in higher specialization will induce less synchronized business cycles while intra-industry trade could lead to increased business cycle synchronization. Thus it is important to distinguish between intra- and inter-industry trade flows. A major part of the dissertation involved the calculation of inter-industry trade indices and intra-industry trade indices at the aggregate and industry levels based on the original data from IMF and WB.