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INTERNATIONAL CAPITAL FLOWS, BOOM-BUST CYCLES, AND BUSINESS CYCLE SYNCHRONIZATION IN THE ASIA PACIFIC REGION

Authors

  • SOYOUNG KIM,

    1. S. Kim: Department of Economics, Seoul National University, 599 Gwanak-ro, Gwanak-gu, Seoul, Korea. Phone (02) 880-2689, Fax (02) 886-4231, E-mail soyoungkim@snu.ac.kr
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  • SUNGHYUN H. KIM

    1. S. H. Kim: Department of Economics, Sungkyunkwan University, Seoul, Korea, and Department of Economics, Suffolk University, Boston MA, USA. Phone 617-994-4232, Fax 617-994-4216, E-mail sunghyun.kim@suffolk.edu
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    • We thank an editor and two anonymous referees for their helpful comments. S.K. acknowledges the support by Research Settlement Fund for the new faculty of Seoul National University.


Abstract

This article documents evidence of business cycle synchronization in selected Asia Pacific countries since the 1990s. We explain business cycle synchronization by the channel of international capital flows and boom-bust cycles. Using the vector auto-regression method, we find that most Asian countries experience boom-bust cycles following capital inflows, where the boom in output is mostly driven by consumption and investment. Empirical evidence also shows that capital flow shocks are positively correlated in the region, which supports the conclusion that capital market liberalization has contributed to business cycle synchronization. (JEL F4)

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