Business Cycle Synchronization in the Enlarged EU: The Role of Bilateral Trade and FDI |
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| Authors: | Dimitrios Asteriou Argiro Moudatsou |
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| Affiliation: | 1. School of Social Sciences, Hellenic Open University, Patras, Greece;2. School of Accounting and Management, Technological Educational Institute of Crete, Heraklion, Crete |
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| Abstract: | The aim of this paper is to investigate the determinants of business cycle (BC) synchronization across 21 (old and new) countries of the enlarged European Union (EU). It utilizes international data to evaluate the linkages among bilateral trade in goods, bilateral foreign direct investment (FDI) flows and BC co‐movements. The paper contributes to the current literature by examining the relationship using the latest available data (sample range: 1998–2011), and thus taking into account the European sovereign debt crisis period. It also examines the role of FDI, which though increasingly important in the flows of international production factors, is currently neglected by the literature. Preliminary results show that FDI has no direct effect on BC synchronization while international trade helps to synchronize BCs but only before the recent financial crisis (pre‐2008) and only for the traditional EU countries. |
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