This paper was prepared for the Conference on International Linkages held in Tokyo, Japan, on 2–3 October 2008. We are grateful to seminar participants for useful suggestions and to Zhai Fan, Fidelis Sadicon, Rogelio Mercado and Mara Claire Tayag for data assistance. We are also grateful to two anonymous referees for their comments. We thank Kevin Donahue for edits and Ma. Theresa Anna Robles provided excellent secretarial assistance. The views expressed in this paper are ours and do not necessarily reflect the views and policies of the Asian Development Bank (ADB), its Board of Directors, or the governments of ADB members.
Emerging Asia: Decoupling or Recoupling
Version of Record online: 19 JAN 2011
© 2011 Blackwell Publishing Ltd
The World Economy
Volume 34, Issue 1, pages 23–53, January 2011
How to Cite
Kim, S., Lee, J.-W. and Park, C.-Y. (2011), Emerging Asia: Decoupling or Recoupling. World Economy, 34: 23–53. doi: 10.1111/j.1467-9701.2010.01280.x
- Issue online: 19 JAN 2011
- Version of Record online: 19 JAN 2011
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.