An enquiry into the decoupling debate for the BRICs and the G7

This paper studies at the decoupling debate and tries to determine whether the BRIC economies are economically decoupled from the G7 economies. After reviewing the existing literature on the subject, we hypothesise that the BRICs are indeed decoupled from the G7. To test this, we use two methods: We first study the Euclidean distance between the G7 output gap and each of the BRIC output gaps, following which, we carry out independent regressions of the output gaps of each BRIC country, as well as a pooled regression. We use the output gap in order to compare the business cycles of the countries, rather than simply growth or output. The results were mixed, with Brazil showing evidence of decoupling, India showing a linkage to the G7 economies and Russia and China showing a tendency towards less decoupling. Thus, the decoupling hypothesis seems to be little more than a myth at this stage, but there are signs indicating that this may be different in the future.