International business cycles synchronization: new evidence on the emerging markets decoupling hypothesis

The paper investigates the validity of the decoupling hypothesis between advanced and emerging countries. To assess the extent of business cycle synchronization we applied the concordance measure put forward by Mink et al.(2007) and recently used in Walti (2009) on the basis of annual data. Using quarterly data over the period 1995-2010, we find that after a substantial increase in business cycles co-movement, different groups of emerging economies decoupled from the US between 2003 and 2007. Decoupling was a temporary break in the context of a long run tendency towards increasing synchronization. The econometric exercise based on a random effects panel probit model supports some of the conventional wisdoms on decoupling. We found that decoupling is more frequent among countries which follow an endogenously-driven model of development and among those with a high degree of intraregional integration. The institutional environment also matter, and the opposing forces of globalization -acting through trade and financial linkages- lower the probability of a country to experience decoupling, as expected, probably due to the transmission of adverse shocks.