Business Cycle Linkages Among Major Advanced Economies

current policy issues involving interactions across national economies. Given that the global economy is in a synchronized slowdown in economic activity, the first two essays are devoted to an examination of the international business cycle linkages among the seven major advanced economies—hereafter called the Group of Seven (G-7) countries—and between the advanced and developing economies. The final essay looks at the issues involved in the proposed launching of a new multilateral trade round under the auspices of the World Trade Organization (WTO). In examining the international business cycle linkages among the G-7 countries, the first essay notes the paradox that while economic and financial interdependence has increased with rapid globalization in recent years, there has been skepticism as to the importance of these linkages. The skepticism stems from the experience of the early 1990s when, in contrast with the 1970s and 1980s, the downturn in activity in the United States was not synchronized with those in continental Europe or Japan. The essay finds that there has indeed been a rapid increase in cross-border links, especially in the financial domain, over the past decade that is contributing to the broad nature of the current global slowdown, but that their importance was obscured in the early 1990s by two unusually large and idiosyncratic shocks—German reunification in continental Europe and the rise and fall of the asset bubble in Japan. The second essay looks at the relatively underresearched area of cyclical connections between advanced and developing economies. At an aggregate level there is a clear correlation between the two cycles. By examining the main international transmission channels of shocks—trade and financial markets—the essay concludes that developing regions of the world such as Asia, whose goods often compete with or complement those in the industrial core, are likely to be more dependent on cyclical conditions in the advanced economies than regions such as the Middle East and sub-Saharan Africa, whose cycles are much more dependent on conditions in commodity markets. The final essay moves from cycles to longer term structural improvements to the global economy, and examines the state of play in launching a new multilateral trade round after the failure to do so in Seattle in 1999. It outlines the significant benefits that trade can provide for the global economy, including enhanced prospects for growth and development. It concludes that, while the situation has improved since the debacle in Seattle, there are still many issues that need to be resolved before a new round can begin.