Regional and Interregional Business Cycle Comovement in Europe, Asia, and North America

This study examines Regional vs. Interregional Business cycle comovement in Europe, Asia, and North America from 1965 to 2016. Our results show that regional business cycles are relatively more synchronous than inter-regional business cycles particularly in North America and Europe. Thus, we empirically studied the determinants of regional output comovement. We employ Panel Granger causality techniques to examine the causal relationships between output correlation, trade integration, and financial linkages. First, for Europe, our results show that there is evidence of a bidirectional causal relationship between output comovement and trade integration in the short run. Also, both bilateral trade and bilateral Foreign Direct Investment (FDI) jointly Granger cause real GDP correlation (unidirectional causality) in the long run. Second, for Asia, we found a bidirectional causal relationship between output comovement and both bilateral trade and bilateral FDI. Finally, for North America, our results provide evidence of a bidirectional causal relationship between output correlation and bilateral trade.