TRADE, FINANCIAL INTEGRATION AND BUSINESS CYCLE SYNCHRONIZATION IN ASEAN: A MIXED-FREQUENCY APPROACH

This study examines business cycle dynamics and synchronization among the ASEAN-10 countries, focusing on how trade and financial linkages influence economic co-movement. We employ the mixed-frequency dynamic factor model to address the challenge of varying data frequencies across these economies. We then construct synchronization indices using conventional rolling correlations and a novel time-varying parameter approach. Our analysis reveals several key findings. First, business cycle synchronization in ASEAN strengthens during regional and global recessions. Second, while increased exports to China promote synchronization of ASEAN business cycles, the effects of exporting to the U.S. and EU are more complex. Exports to the U.S. are positively associated with synchronization in some model specifications, whereas the influence of exports to the EU appears weak and often insignificant. Finally, we find limited empirical evidence of a relationship between foreign direct investment (FDI) and business cycle synchronization in ASEAN.