In this paper we use a structural VAR model with block exogeneity to investigate if
external shocks originating from the USA played a dominant role in influencing the
macroeconomic fluctuations in East Asia during the period 1978-2007. The empirical
results show a dynamic effect of external shocks, implying that, even though regional
integration appears to be deepening and accelerating, especially after the recent global
financial crisis, the influence of US shocks on real output fluctuations in the East
Asian region is still very strong. The effects of Chinese shocks show an increasing
trend over time, but the impacts are still small and not comparable with those of US
shocks. The world oil price shock has become increasingly important in influencing
the stability of real output growth in the region. The results from variance
decomposition and impulse response analysis confirm the findings. Even though
Japanese firms have established production networks in East Asia through trade and
investment, and China has also grown rapidly and become a key regional country, the
results suggest that US influence in the region is still asymmetric and strong.
Therefore, it is difficult to conclude that shocks to the East Asian economies have
become more regionally oriented.
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