Business cycle synchronization: Disentangling direct and indirect effect of financial integration in the Indian context |
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| Affiliation: | 1. Department of Finance, College of Business Administration, King Saud University, Riyadh, Saudi Arabia;2. Faculty of Economic sciences and Management of Sousse, University of Sousse, Sousse, Tunisia;3. IPAG Lab, IPAG Business School, Paris, France;4. International Finance Group – Tunisia;1. Aix-Marseille Université (AMSE & CNRS & EHESS), Banque de France and CEPII, France;2. ESG Management School, Paris, France;1. Department of Economics and Regional Development, Panteion University of Social and Political Sciences, 136 Syngrou Avenue, GR17671 Athens, Greece;2. Department of Accounting, Finance and Economics, Ulster University, Shore Road, Newtownabbey BT37 0QB, UK;3. Department of Accounting, Finance and Economics, Bournemouth University, Executive Business Centre, 89 Holdenhurst Road, BH8 8EB Bournemouth, UK;4. Department of Statistics, Athens University of Economics and Business, 76 Patission str., Athens 10 434, Greece |
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| Abstract: | The study empirically investigates the effect of financial integration (FI) on business cycle synchronization (BCS) in the Indian context. Using concordance index, dynamic conditional correlation, and 3SLS, we find: (1) India's business cycle is significantly synchronized with nine economies (2) The evaluation of BCS shows a higher synchronization with the five economies (3) FI, directly and indirectly, reduces BCS (4) The direct effect of FI occurs through wealth effect, in most cases, indicating dominance of portfolio diversification against portfolio rebalancing associated with balance sheet effect (5) FI reduces the BCS, indirectly through intra-industry trade and differences in economic specialization. |
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