Sino - Korean Economic Cycle Synchronization And Transmission Mechanism

Obviously, business cycle is not a unfamiliar concept to most of the researchers who major in economics, the development of a nation’s economy has to been through fluctuations. These fluctuations occur around a long-term growth trend, and typically involve shifts over time between periods of relatively rapid economic growth (an expansion or boom), and periods of relative stagnation or decline (a contraction or recession).Nowadays, economic researches on the concept of business not only focus on one single country, but also on the relationship of different countries’ business cycle in some area, or even beyond the constraint of the geographic location.The researches show that the business cycle coordination can be found in the most of the developed countries. For instance, the business cycle coordination is relative strong among the countries of the Organization for Economic Co-operation and Development (OECD).However, as the development of economic globalization, the economic development trend all over the world gradually turns consistent. This business cycle coordination becomes stronger especially after the global financial crisis in2008.At the same time, a lot of papers which research on the topic of the business cycle relationship between developed countries and developing countries emerge from the change of the real world. These researches give me a enlightenment as well.This paper which learned a lot on the analysis of former scholars mainly researches on the economic relationship between China and Korea, and plan to solve the problems as follows:First, China and Korea, as each countries’neighbor in east Asia, have a long historic friendship with each other, but as a developing country and a developed country, do they have a business cycle co-movement? Second, if this kind of co-movement really exists, what’s the reason behind this relationship? And how does the economic movement transmit from one country to another? At last, as we all known, the existence of economic cycle co-movement is the fundamental of cooperation between two countries. If the trend of economic cycle co-movement can be reassure, what should the two governments do to strengthen the relationship and cooperation of each other under today’s economic environment around world, so as to get a mutual development.So follow the thinking of the questions above, the structure and main contents of this paper are as follows:the first part introduces the main contents and methods in the paper, as well as the definition of research objects, the data sources and processing, a simple analysis of the innovation points and insufficiencies in this paper.The second part, literature review, introduces the main economic theories involved in this paper and makes a summary of the research method, related theories and main ideas of the previous literature after carefully digest of them.The third part of this paper gives a empirical analysis on the business cycle co-movement of China and Korea by two economic indicator:the real GDP growth rate and the stock-index. By testing the co-relation between the two countries in these two indexes, we prove the existence of this co-movement. And we still do a further analysis on the data and find out one possible reason under this business cycle co-movement is common shock from outside.The fourth part mainly analysis the transmission mechanism from four aspects:bilateral trade, the communication in financial market, the similarity of economic policy and the similarity of industrial structure. All of these aspects have a positive impact on the business cycle co-movement. We especially focus on the aspect of bilateral trade, divide it into intra-industry trade and trade between the industry, and analysis their influence separately, so as to give a deeper research on the impact of industrial structure of the two country.The fifth part is about the future prospect on the economic friendship between China and Korea under today’s economic environment of the world. We analysis the possibility and the advantages of the Free Trade Agreement (FTA) between China and Korea, we do a simple introduction of the possible financial cooperation, currency swap, between the two countries as well.We summarize the main concept and idea of this paper in the final part.