"National economies are increasingly moving in sync and responding to the same booms and busts as a result of near-instantaneous communications and interdependent global supply chains. This is a sharp change from much of the 21st century, when economies were primarily affected by economic shocks in neighboring countries. That's what we found in a paper published in the journal Economic Letters, in which we calculated measures of economic correlation using data on gross domestic product for 70 countries over the past 60 years."
"Specifically, we measured the extent to which countries have found their business cycles - the traditional boom-bust intervals of economic performance - in sync. For example, when there is a positive shock to production in Germany, to what extent does this affect incomes in the United States? We were interested in whether the relationship between distance and economic correlation has changed over time."
National economies increasingly move in sync and respond to shared booms and busts because of near-instantaneous communications and interdependent global supply chains. Measures of economic correlation using GDP data for 70 countries over 60 years assessed how synchronized business cycles are across countries. From 1960 to 1999, business cycles were strongly localized: economies were more influenced by shocks in nearby countries, and trade volume predicted synchronization. After 2000 the relationship between physical distance and economic correlation weakened substantially; over the past twenty years there has been no statistical relationship between geographic distance and business-cycle synchronization.
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