Business cycle co-movements between South Africa and the BRIC countries

Abstract

This article examines the relationships between South African economy and the economies of the BRIC (Brazil, Russia, India and China). In particular, it identifies the nature and key features of the co-movement of South African business cycles with cycles of the BRIC countries. It uses the dynamic factor model to a set of 307 macroeconomic series during the period 1995Q2 to 2009Q4. We found significant evidence of synchronization between South Africa and the BRIC countries over the business cycle, although the magnitude of co-movement differs with each country. India portrays strong ties with South Africa over time. Moreover, Brazil, China and Russia lead South Africa in the long run, while India is contemporaneous. Further, the findings imply that the first two factors are BRICS factors while the third one is a US factor.

Keywords:

• dynamic factor model
• international business cycles
• co-movement
• BRICS

JEL Classification:

• C3
• E32

Acknowledgements

We would like to thank Abdullah Tırabzon, Andrew Duncan and an anonymous referee for their useful comments and assistance. We gratefully acknowledge financial support from Economic Research Southern Africa (ERSA)

Notes

1. Among others, Nadal De Simone (2002) analyses the synchronization of output cycles between European economies and the US using a dynamic factor model, and Kose et al. (2008) examines the changes in the nature of G7 (group of 7 most advanced countries) business cycles in main macroeconomic aggregates using the Bayesian dynamic factor model.

2. More details can be found in Forni and Lippi (2001), and Stock and Watson (2002a, b).

3. These models have been applied by Singleton (1980), Chamberlain and Rothschild (1983), Quah and Sargent (1983) and Stock and Watson (1998), among others.

4. It has been used by Forni and Lippi (2001), Stock and Watson (2002a, b), Bai and Ng (2002), Forni et al. (2005), Kabundi (2009), Kabundi and Nadal De Simone (2011), Doz et al. (2011), and Crucini et al. (2011).

5. See Bai and Ng (2002) for more technical details of all six information criteria.