Disentangling different patterns of business cycle synchronicity in the EU regions

The present paper provides a comprehensive and consolidated analysis of the business cycle synchronicity between European regions and EU-14. Our study is conducted in three levels. First, we analyse regional business cycle synchronisation with the EU 14 benchmark cycle, using real GDP in 200 NUTS II regions for a period of 30 years (1980–2009), detrended by Hodrick–Prescott filter. Secondly, we employ a VAR type methodology to examine the dynamic relationship of the regional business cycles. Our main interest is to study the dynamics of business cycles as well as the pattern of the transmission mechanism to regions with different levels of development. Finally, we empirically extend the research on identifying factors which might drive regional business cycle synchronisation. In particular, we analyse the role of trade integration and the sectoral patterns of specialisation as determinants of regional growth cycle correlations with the EU 14. Moreover, we draw attention to regional productivity as another possible determinant of business cycle synchronisation associated with the pattern of the spatial distribution of economic activities across regions. Panel three-stage least-squares estimation is implemented for the simultaneous equations between determinants and regional business cycles synchronisation.