The impact of intra-industry trade on business cycle synchronization in East Asia

•This paper empirically analyzes distinctions between intra- and inter-industry trade indices.•The co-movements of business cycles are influenced more through the intra-industry trade than by the total volume of trade.•Increased business cycle synchronization, as one of the optimum currency area criteria, is overemphasized.

This paper empirically analyzes distinctions between intra- and inter-industry trade indices. The research indicates that the co-movements of business cycles are influenced more through the intra-industry trade channel than by the total volume of trade itself. As trade integration among Asian countries increased, business cycle synchronization among these countries was expected to expand through trade transmission. Inter-industry trade resulting in higher specialization will induce less synchronized business cycles, while intra-industry trade could lead to increased business cycle synchronization. Moreover, I find that increased business cycle synchronization, as one of the optimum currency area criteria, is overemphasized.