Abstract
Globalisation brought about worldwide changes, including economic and financial integration
between countries. The objective of this paper is to establish if there is synchronisation between
developed and developing countries with the world cycle. Research results show that business
cycles have become less volatile after globalisation, but there is not much consensus on whether
business cycles have become less or more synchronised since globalisation. Little research has been
done on co-movement between emerging markets, such as South Africa, and the world business
cycle. This paper derives common factors for developed and developing countries by applying
principal component analysis (PCA) to output, consumption and investment data, which
represents the countries’ business cycles. The empirical analysis shows co-movement between some
countries and the world business cycle (G7 countries as proxy). The results suggest that there are
idiosyncratic and globally common shocks, which play different roles over time in different
countries. The paper goes on to suggest that there are clear differences in how developed and
emerging markets co-move with the world business cycle. A key finding is that the co-movement
between developing economies and the world business cycle has increased since globalisation. This
research also confirms previous research that most economies follow the world business cycle when
large shocks – such as the recent economic downturn – occur. This has implications for forecasting
the business cycle, especially in times of economic turmoil.