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Policy Reference
Author LEE Woong and LEE Jung-Mi Series 15-13 Language Korean Date 2015.12.30
This paper investigates the short-term and long run co-movement of key economic indicators in the South Asian countries: real GDP, exports, imports, openness, exchange rate. This paper performs Johansen’s co-integration test to detect long-term stochastic time trend and Vahid and Engle’s common feature test to examine the existence of short-run common cycles. The results show that the co-movement of the South Asian countries is very weak not only in the long run but also in the short run. Regional conflicts and low degree of intra-trade and intra-investment have led to weak co-movement in this region. Especially tensions between India and Pakistan make barriers in most areas, including trade and investment. The weak co-movement means that the economic integration of South Asia continues to be delayed and the spillover effect of the rise of the Indian economy will be limited. Therefore, it is suggested that both firms and the government have to make differentiated and specialized strategies and policies for each South Asian country.
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