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Global economies are moving in perfect synchronization more than they ever have before. Nations around the world are now experiencing the same economic ups and downs at the exact same time. This powerful shift occurs because modern communication networks and intricate supply chains have tightly connected the entire planet. It represents a fundamental change from the early part of the twenty-first century. During that earlier period, a country's economic health was primarily influenced by problems in the nations located right next to it.
We identified this significant pattern in a recent study published in the journal Economic Letters. In our research, we calculated the degree to which the economies of seventy different nations matched each other. We utilized historical data on gross domestic product, which represents the total value of all goods and services produced, gathered over the past sixty years. Along with fellow researchers Yoonseon Han and David Lindequist, we discovered that physical distance has become much less important today than it was in the past. This change is particularly evident when examining how connected countries are to one another.
We focused specifically on business cycles. A business cycle refers to the regular, predictable patterns of economic growth and decline that societies experience. We measured how frequently countries experienced these periods of rapid boom and severe bust at the same time. For instance, if there is a sudden increase in production in Germany, how much does that change income levels in the United States? We wanted to determine if the link between the physical distance separating countries and the similarity of their economic performance has changed over the decades.
Our data reveals a clear and distinct shift in global economics. From 1960 to 1999, business cycles were strongly localized. This meant that a country's economy was far more likely to be damaged by problems in nearby nations rather than those located far away. For example, the United States economy was heavily influenced by events happening in Canada or Mexico. It was significantly less affected by economic conditions in the United Kingdom or South Korea.