Interdependence of SAARC-7 countries: an empirical study of business cycles

This research intends to study on the interdependence of South Asia Association of Regional Co-operation (SAARC-7) relationship. It consists of seven countries which include Sri Lanka, Pakistan, Nepal, Maldives, India, Bhutan and Bangladesh. This study utilizes yearly real GDP data that spans from 1970 to 2007 from the SAARC-7 countries. Three methods are used to determine the interdependence of SAARC-7 countries namely the correlation coefficient estimation method, the standard Dickey-Fuller (ADF) unit root test and the Granger non-causality test proposed by Toda and Yamamoto (1995). Empirical results show that there are mutual relationship and correlation among the real GDP growth between SAARC-7 countries in the long run. Results obtained from the Toda and Yamamoto Granger non-causality test indicate that there is a sturdy interdependence among the economies of SAARC-7 countries.