Series: Working Papers. 1705.
Author: María Dolores Gadea-Rivas, Ana Gómez-Loscos and Danilo Leiva-Leon.
Topics: Regional analysis | Quantitative methods | European Union | International Economy | Economic growth and convergence.
Published in: Economic Modelling Volume 80, Issue 4, August 2019, Pages 222-243
as "Increasing linkages among European regions. The role of sectoral composition"
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Abstract
This paper studies the dynamics of the propagation of regional business cycle shocks in Europe and uncovers new features of its underlying mechanisms. To address the lack of high frequency data at the regional level, we propose a new method to measure timevarying synchronization in small samples that combines regime-switching models and dynamic model averaging. The results indicate that: (i) in just two years, the Great Recession synchronized Europe twice as much as the European Union integration process did over several decades; (ii) Ile de France is the region acting as the main channel for the transmission of business cycle shocks in Europe; followed by Inner London and Lombardia; and (iii) we identify a nonlinear relationship between sectoral composition and regional synchronization, which was amplified in the wake of the Great Recession. Similarities in services sectors are primarily responsible for this nonlinear relationship.