The myth of decoupling

This paper casts light on the ongoing debate about whether emerging markets have decoupled from advanced economies. The proponents of the decoupling hypothesis argue that emerging markets have made significant progress in reducing external vulnerabilities, strengthening domestic policy frameworks, and achieving stronger domestic demand growth, thereby leading to lower business cycle comovements with advanced economies. This view runs against extensive empirical evidence showing that globalization, namely rising trade and financial integration, raises business cycle synchronisation. We find that decoupling is a myth: business cycle synchronicity between emerging markets and advanced economies has generally not declined in recent years.