Emerging Market Economies and International Business Cycle Fluctuations

Abstract

This chapter defines business cycles and discusses the causes of business cycle fluctuations in emerging market economies. Both external and domestic factors are sources of business cycle fluctuations in emerging market economies. Business cycle fluctuations are more volatile and recessions are much deeper in emerging markets than in advanced economies. Globalization, increased trade, and financial integration raise business cycle synchronization across countries. However, there is a debate about the decoupling of business cycle fluctuations in emerging markets from advanced countries. There are both supporting and opposing studies to the decoupling hypothesis. The global financial crisis pulled the advanced economies into recession, while on the other hand, emerging market economies were less affected by the crisis because of their increased resilience after the year 2000. Business cycle fluctuations in emerging market economies became less closely tied to cycles in advanced economies.