Business Cycle Synchronization and Multilateral Trade Integration in the BRICS

Abstract

Two decades have passed since the acronym BRIC was coined in 2001. The cooperation within the BRIC was formalized in 2009, and the BRIC expanded into BRICS after South Africa joined in 2010. To deepen economic cooperation within the BRICS, the progress of regional economic integration will affect the degree of business cycle synchronization within the region, which in turn will have an impact on the direction and magnitude of macroeconomic interdependence and growth spillovers among the regional partners. In this paper, we find inconclusive evidence of cross-country business cycle synchronization and trade integration in the BRICS. To investigate their potential for further multilateral trade integration, we combine data on international trade linkages with network methods to examine the multilateral trade system in the BRICS as an interdependent complex network. We map the topology of the BRICS multilateral trade network, and assess the extent of their multilateral trade integration. The policy implication is that to promote BRICS regional economic integration, there are two possible paths forward: the formation of regional trade agreement (RTA), and the adoption of central bank digital currency (CBDC).

Keywords:

• Business cycle
• macro interdependence
• international trade
• trade integration
• regional economic integration
• network
• BRICS

JEL CLASSIFICATION:

• E32
• F14
• F15
• F44

Acknowledgments

The author would like to thank the participants for their comments at the technical conference on “Promoting BRICS Economic Integration via Central Bank Digital Currencies”, which was hosted by Nelson Mandela University and the National Institute for the Humanities and Social Sciences (NIHSS) in South Africa on April 11, 2022.

Notes

1 See also Wilson and Purushothaman (2003); O’Neill et al. (2005); O’Neill (2007); O’Neill and Stupnytska (2009); Wilson et al. (2011).

2 The Economist (2008, April 21), “Another BRIC in the Wall: The perils of overestimating emerging markets”. See https://www.economist.com/finance-and-economics/2008/04/21/another-bric-in-the-wall

3 Reuters (2010, December 24), “China invites South Africa to join BRIC: Xinhua”, See https://www.reuters.com/article/us-bric-safrica-idUSTRE6BN1DZ20101224

4 Smith, J. A. (2011, January 21), “BRIC Becomes BRICS: Changes on the Geopolitical Chessboard”, Foreign Policy Journal.

See https://www.foreignpolicyjournal.com/2011/01/21/bric-becomes-brics-changes-on-the-geopolitical-chessboard/2/

5 In Google Trends, we searched the term “BRICS” worldwide for the time range from 01/01/2010 to 07/15/2022, and found the top 5 countries that show most interest to the BRICS are: South Africa, India, Brazil, Bangladesh, Bolivia. See https://trends.google.com/trends/explore?date=2010-01-01%202022-07-15&q=BRICS

6 Keohane, D. (2011), “Goldman Sachs: BRICs in 2050”, Financial Times, December 8. See https://www.ft.com/content/937ba4d9-563b-3a69-b6b7-2b339dea124c

7 In Figure 2, the size of the bubble represents the GDP level of each BRICS country, with data sourced from IMF-WEO projection in October 2021. The number inside the bubble is the GDP growth rate of each BRICS country, with data sourced from IMF-WEO projection in January 2022.

8 where: ${\Delta }_2{\text{y}}_{\text{t}+2}={\text{y}}_{\text{t}+2}-{\text{ y}}_{\text{t}}$

9 See Hamilton (1994, p. 414), equations [14.1.19] and [14.1.20].

10 = Freeman betweenness centrality. In UCINET, Network – Centrality – Freeman Betweenness – Node Betweenness.

11 In UCINET, Network – Whole networks & cohesion – Clustering Coefficient.

12 For example, a complete triple (triangle) would be A -> B, A -> C, and B -> C, and/or C -> B; and connected triple can be just A -> B, A -> C. The factor of 3 accounts for the fact that each triangle contributes to three triples and ensures that.

13 “BRICS in Africa: Collaboration for Inclusive Growth and Shared Prosperity in the 4^th Industrial Revolution - 10^th BRICS Summit - Johannesburg Declaration”, July 26, 2018. See http://www.dirco.gov.za/docs/2018/brics0726.pdf

14 See Chetty et al. (2022) and Ncwadi et al. (2022).

15 In UCINET, Visualize – Netdraw; Analysis – Centrality measures – Set Node Sizes by: Degree.