Business Cycle Interdependence and the Role of FDI: Study on the US and the BRIC economies

Due to globalization business cycles are getting more interdependent. During the process of globalization, emerging countries have gained economic importance. The new structure of the world economy brings important implications for business cycles around the world. One source that might contribute to business cycle interdependence between emerging and developed economies are Foreign Direct Investments (FDI‟s). Since the mid 80‟s FDI flows have grown severely. The aim of this thesis is to answer whether the business cycles of the emerging BRIC countries and the US are interdependent and to investigate the influence FDI has on this interdependency. The findings reveal that there is a structural break towards more business cycle interdependence between the BRIC countries and the US. The results also indicate that when FDI linkage becomes stronger, there is more business cycle synchronization.