Spatial Analysis of the Dependence of World Business Cycles

Abstract

In this paper we extend and complement the existing literature by considering the synchronization of business cycles across multiple countries. Using spatial error and spatial lag models with data from 187 countries over the period of 1960-2007, we find a strong spatial dependence of business cycles across countries. The effect of geographical proximity on business cycle synchronization is strongest during the period of international shocks (1973-1986), but almost disappears over the globalization era (1987-2007). By way of contrast, the influence of trade relations in determining comovements of business cycles is significant over 1987-2007.