International Dependency and Economic Fluctuations in East Asian NIEs

This paper investigates the sources of economic fluctuations in the four Asian newly industrialized economies (NIEs), namely Hong Kong, Republic of Korea, Singapore and Taiwan. As small open economies, their macroeconomic development is highly dependent on technology as well as markets of large countries. Using the common trends model, we examine the impacts of external supply shock, internal supply shock and trade shock on the key national macroeconomic variables of these four economies, i.e. output, consumption, investment, export and import. The identification restrictions of the models are derived from the economic theory about the long-run relationships among the variables. The impact parameters are calculated from the common trends models and are used to analyze the influences of different shocks on the macroeconomic fluctuations. Our empirical evidence suggests that supply-side disturbances, both the country-specific supply shocks and international supply shocks explain the bulk of fluctuations in output.