The Influence of FDI on the Synchronization of Business Cycles: A Panel approach
The Influence of FDI on the Synchronization of Business Cycles: A Panel approach
How does FDI integration influence the synchronization of business cycles? This question is of importance in the context of the European discussion on the optimal currency area. Moreover, recent turbulent years have shown that we need to deepen our understanding of international business cycle co-movement and its determinants. Existing literature has answered these questions in a static cross-country context using the period based synchronization measure of correlation. We provide new insights by using synchronization measures, which are computed for each point in time. These measures are not subject to an arbitrary underlying period and allow for examination of the synchronization pattern over time. Through the application of time series and panel approaches pair and time effects can be included. Furthermore we are able to account for dynamic relations in an appropriate way. This allows us to analyze in addition to long term effects short term aspects of the business cycle interplay.