Is Decoupling Between Emerging and Developed Economies a Reality?

Is Decoupling Between Emerging and Developed Economies a Reality?

Though most of the developed economies are experiencing negative real GDP growth through the first quarter of 2009, emerging and developing economies in Asia, Middle East, Sub-saharan African economies are set to post positive economic growth this year ( World Economic Outlook, IMF, April 2009). However, since the developed economies weigh high on the world GDP, the global GDP, according to the IMF, is expected to decline by 1.3%.

The resilience of emerging economies despite the decline of the developed economies has rekindled the decoupling debate. This debate hinges on the premise that the emerging economies can continue to grow strongly in spite of a declining developed economies.

The objective of this paper is to empirically analyze the renewed debate of the decoupling theory relating to relative changes in the real and financial sectors of the developed and emerging economies since the fall of 2008.

Methodology: A correlation analysis of the real GDP growth rates and  the growth rates of financial market averages of the developed and emerging regions of the world economy will be performed to gauge the synchronism, or lack thereof, of the world economic performance. The finding low or negative correlation will lend support to the decoupling hypothesis.

Data:

1.      IMF’s quarterly publication of World Economic Output (WEO): October 2008, January 2009, April 2009.

2.      World Bank’s World Development Indicators

3.      Economist Magazine’s Economic and Financial Indicators. Various issues.