Skip to main content
SpringerLink
Log in

On the endogeneity of an exogenous OCA-criterion: specialisation and the correlation of regional business cycles in Europe

  • Original Paper
  • Published:
Empirica Aims and scope Submit manuscript

Abstract

This paper examines whether changes in the degree of correlation of employment cycles across regions (of Belgium, France, Germany, Ireland, the Netherlands, and Spain) can be explained by changing patterns of specialisation. The empirical method adopted carries out pooled regressions for all possible region-pairs which relate moving correlations between the residuals of HP-filtered regional employment to their own past and an index of specialisation. As a test of robustness, the benchmark estimations which originally include dummies for common borders, German unification and relative differences between regional incomes are systematically tested down. The empirical results again highlight the problem of a common monetary policy for uncommon regions within the euro zone.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Abbreviations

KOR::

Bravais, Pearson correlation coefficient measuring the 5-year moving correlation between the residuals of HP-filtered employment of two regions.

CON::

Index of conformity as defined in Table 2.

SPEC::

Finger–Kreinin index as defined in Table 2.

FIN::

Coefficient of specialisation as defined in Table 2.

RELINC::

Relative income for a region-pair, calculated as the absolute value of the difference between the logarithms of real GDP of these two regions. Nominal regional GDP was deflated by the consumer price index of the country the respective regions belong to.

DUM1::

dummy to describe the direct neighbourhood of two regions to each other (1 for common borders, 0 otherwise)

DUM2::

dummy to describe the indirect neighbourhood of two regions to each other (1 for region-pairs separated by exactly one other region, 0 otherwise)

DUMGER::

dummy for German unification coded as 1 for the period from 1990 on, otherwise 0.

Data sources and more detailed specifications of each variable are described in Sect. 3.

References

  • Amiti M (1997) Specialisation patterns in Europe. Weltwirtschaftliches Archiv 135:573–593

    Google Scholar 

  • Arellano M (1989) A note on the Anderson–Hsiao estimator for panel data. Econ Lett 31:337–341

    Article  Google Scholar 

  • Artis MJ, Zhang W (1997) International business cycles and the ERM: is there a European business cycle? Int J Finance Econ 2:1–16

    Article  Google Scholar 

  • Babetski J, Boone L, Maurel M (2002) Exchange rate regimes and supply shocks asymmetry: the case of the accession countries. CEPR Discussion Paper No. 3408, Centre for Economic Policy Research, London

  • Barrios S, Brülhart M, Elliott R, Sensier M (2001) A tale of two cycles: co-fluctuations between UK regions and the Euro zone. In: University of Nottingham research paper series No. 02/2001

  • Baxter M, King RG (1999) Measuring business cycles: approximate band-pass filters for economic time series. Rev Econ Stat 81:575–593

    Article  Google Scholar 

  • Belke A, Fehn R (2002) Institutions and Structural Unemployment: do capital-market imperfections matter? ifo Studien 48:405–451

  • Belke A, Gros D (1998) Asymmetric shocks and EMU: is there a need for a stability fund? Interecon Rev Int Trade Develop 33:274–288

    Google Scholar 

  • Belke A, Gros D (2001) Real impacts of intra-European exchange rate variability: a case for EMU? Open Econ Rev 12:231–264

    Article  Google Scholar 

  • Belke A, Heine JM (2001) On the endogeneity of an exogenous OCA-criterion: the impact of specialisation on the synchronisation of regional business cycles, HWWA Discussion Paper No. 119, HWWA-Institut für Wirtschaftsforschung Hamburg

  • Brülhart M (2000) Labour-market effects of intra-industry trade: evidence for the United Kingdom. Weltwirtschaftliches Archiv 138:207–228

    Google Scholar 

  • Caporale GM, Pittis N, Prodromidis K (1999) Is Europe an optimum currency area? Business cycles in Europe. J Econ Integration 14:169–202

    Google Scholar 

  • Christodoulakis N, Dimelis SP, Kollintzas T (1995) Comparisons of business cycles in the EC: idiosyncrasies and regularities. Economica 62:1–27

    Article  Google Scholar 

  • Clark TE, Shin K (2000) The sources of fluctuations within and across countries. In: Hess G, van Wincoop E (eds) Intranational macroeconomics. Cambridge University Press, pp 189–217

  • Clark TE, van Wincoop E (2001) Borders and business cycles. J Int Econ 55:59–85

    Article  Google Scholar 

  • Cleveland WS (1993) Visualizing data. Hobart Press

  • European Central Bank (1999) Monthly Bulletin, July, Frankfurt/Main, pp 35–58

  • Fatás A (1997) Countries or regions? Lessons from the EMS experience. Eur Econ Rev 41:743–751

    Article  Google Scholar 

  • Finger JM, Kreinin M (1979) A measure of export similarity’ and its possible uses. Econ J 89:905–912

    Article  Google Scholar 

  • Forni M, Reichlin L (1997) National policies and local economies: Europe and the United States. In: CEPR Discussion Paper No. 1632, Centre for Economic Policy Research, London

  • Frankel JA, Rose AK (1998) The endogeneity of the optimum currency area criteria. Econ J 108:1009–1025

    Article  Google Scholar 

  • Greene WH (2000) Econometric analysis, 4th edn. New Jersey

  • Greenaway D, Hine RC (1991) Intra-industry specialization, trade expansion and adjustment in the European Economic Space. J Common Market Stud 29:603–622

    Article  Google Scholar 

  • Higgins M, Zakrajsek E (1999) Purchasing power parity: three stakes through the heart of the unit root null. Federal Reserve Bank of New York, mimeo

  • Hodrick RJ, Prescott EC (1997) Postwar U.S. Business cycles: an empirical investigation. J Money, Credit Banking 29:1–16

    Article  Google Scholar 

  • Imbs J (1999) Co-fluctuations. In: CEPR Discussion Paper No. 2267, Centre for Economic Policy Research, London

  • Inklaar R, DeHaan J (2001) Is there really a European business cycle? Oxford Economic Papers 53:215–220

    Google Scholar 

  • Kalemli-Ozcan S, Sorensen B, Yosha O (2000) Economic integration, industrial specialisation, and the asymmetry of macroeconomic fluctuations, mimeo

  • Kim S (1999) Expansion of markets and geographic distribution of economic activities: the trends in US regional manufacturing structure, 1860–1987. Quart J Econ 110:881–908

    Google Scholar 

  • Krieger-Boden Ch (1999) Nationale und regionale Spezialisierungsmuster im europäischen Integrationsprozess. In: Die Weltwirtschaft No. 2, pp 234–254

  • Krieger-Boden Ch (2000) Globalization, integration and regional specialisation. Kiel Working Paper, No. 1009

  • Krugman P (1991) Increasing returns and economic geography. J Polit Econ 99:483–499

    Article  Google Scholar 

  • Krugman P (1998) What’s new about the new economic geography. Oxford Rev Econ Policy 14:7–17

    Article  Google Scholar 

  • Krugman P, Venables AJ (1996) Integration, specialisation and adjustment. Eur Econ Rev 40:959–967

    Article  Google Scholar 

  • Levin A, Lin CF (1992) Unit root tests in panel data: asymptotic and finite-sample properties. University of California, San Diego, Department of Economics Discussion Paper 92–23, May

  • Midelfart-Knarvik KH, Overman HG, Redding SJ, Venables AJ (2000) The location of European industry. In: CEPR Discussion Paper No. 2618, Centre for Economic Policy Research, London

  • Molle W (1997) The regional economic structure of the European Union: an analysis of long-run developments. In: Peschel K (ed) Regional growth and regional policy within the framework of European integration. Heidelberg, pp 66–86

  • OECD (1999) EMU: facts. Challenges and Policies, Paris

  • Puga D (1999) The rise and fall of regional inequalities. Eur Econ Rev 43:303–334

    Article  Google Scholar 

  • Puga D (2002) European regional policies in light of recent location theories. J Econ Geogr 2:373–406

    Article  Google Scholar 

  • Quantitative Micro Software (2000) EViews—command and programming reference. Irvine, California

  • Ricci LA (1999) Economic geography and comparative advantage: agglomeration versus specialisation. Eur Econ Rev 43:357–377

    Article  Google Scholar 

  • Schmutzler A (1999) The new economic geography. J Econ Surveys 13:355–379

    Article  Google Scholar 

  • Venables AJ (1996) Equilibrium locations of vertically linked industries. Int Econ Rev 37:341–359

    Article  Google Scholar 

  • Wasmer J, Weil P (2000) The macroeconomics of labor and credit market imperfections. In: IZA Discussion Paper No. 179, Bonn

  • Wifo (1999) Specialisation and (geographic) concentration of European manufacturing, Austrian Institute for Economic Research, Report of a study for the enterprise DG of the European Commission, Brussels

  • Wooton I, Ludema RD (1999) Regional integration, trade and migration: are demand linkages relevant in Europe? In: Faini R (ed) Migration—the controversies and the evidence, Cambridge, pp 51–68

Download references

Author information

Authors and Affiliations

  1. Department of Economics, University of Hohenheim, Institute for the study of labor (IZA), Bonn, Stuttgart, D-70593, Germany

    Ansgar Belke

  2. ZEB/Rolfes.Schierenbeck Associates, D-48153, Münster, Germany

    Jens Heine

Authors
  1. Ansgar Belke
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Jens Heine
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding authors

Correspondence to Ansgar Belke or Jens Heine.

Additional information

The authors would like to thank an anonymous referee and the participants in the annual NOEG conference in Innsbruck for helpful comments.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Belke, A., Heine, J. On the endogeneity of an exogenous OCA-criterion: specialisation and the correlation of regional business cycles in Europe. Empirica 34, 15–44 (2007). https://doi.org/10.1007/s10663-006-9017-9

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10663-006-9017-9

Keywords

JEL-Codes

Search

Navigation