Can emerging economies decouple from the US business cycle?

In this paper we focus on the decoupling hypothesis between emerging countries and United States, as the more influent economy for the business cycle movements of advanced countries. Despite the theoretical and empirical analyses to date, it seems fair to say that there is no consensus on the main determinants of differences or similarities in the business fluctuations among countries or groups. We contribute to the debate using quarterly seasonally adjusted data over the period 1995–2010 and find that after a period of substantial increase in business cycles synchronization, different groups of emerging economies decoupled from the United States before the outbreak of the financial crisis (between 2003 and 2007). During the peak of the crisis the change in business cycle was so huge to determine the “decoupling reversal” (or recoupling) that results from our analysis. Furthermore, we investigate the conditions under which emerging economies can actually avoid being involved into the United States recession or at least minimize the consequences. Our results suggest as key variables domestic demand, intraregional linkages and quality of institutions. The higher the level of these variables, the most likely is to reduce their dependence from the US business cycle.