This paper examines the effects of internal (or regional) vs. external (inter-regional) integration and of trade vs. financial integration on regional business cycle synchronization in Asia. The empirical results show the following: (1) similar and strong common external linkages have significant positive effects on regional business cycle synchronization; (2) after controlling for external linkages, internal trade integration has a positive effect on regional business cycle synchronization but internal financial integration has a negative effect; and (3) the measures of external linkages, particularly the measure of external financial linkages, are more important than those of internal linkages in explaining regional business cycle co-movements.

We thank Anwar Nasution, Bokyeong Park, Jiyoun An, Yukiko Fukagawa, and seminar participants at Seoul National University Annual Conference of Western Economic Association, A3 Conference on Monetary and Financial Cooperation in the Region, and the Asian Economic Panel. Financial support from the Institute for Research in Finance and Economics of the Seoul National University is also gratefully acknowledged.

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