Emerging Research Frontiers in Business Cycle Synchronization: A Review of Measurement, Evolution, and Driving Forces

ABSTRACT

Offering new evidence on business cycle synchronization (BCS) has received special attention in recent decades owing to the structural shifts witnessed in the world economy. Hence, this study provides a survey of the literature on business cycle synchronization. The study aims to understand: (a) the definition, (b) measurement, (c) evolution, (d) determinants/driving forces, and (e) propose future research directions. This study highlights that correlation, dynamic correlation, the concordance index, the absolute growth differential, the decoupling index, and the network approach are the key measures of synchronization. While trade integration, financial integration, specialization, and policy similarity have emerged as key drivers, other factors, such as the global financial cycle, geographical proximity, and political factors, also drive synchronization. To track the evolution, this study delves into historical evidence, conventional wisdom, the world business cycle, sectoral and regional business cycles, the financial crisis perspective, the euro area, and the decoupling hypothesis. Finally, this study reveals that although economies are broadly synchronized during a specific period, they exhibit distinct synchronization patterns across different economies and groups at various time periods. Given the long‐standing and unsettled literature, these findings are highly relevant for policymakers, and the suggested research directions open avenues for future research.