Abstract
AbstractThe aim of this paper is to investigate the determinants of business cycle (BC) synchronization across 21 (old and new) countries of the enlargedEuropeanUnion (EU). It utilizes international data to evaluate the linkages among bilateral trade in goods, bilateral foreign direct investment (FDI) flows andBCco‐movements. The paper contributes to the current literature by examining the relationship using the latest available data (sample range: 1998–2011), and thus taking into account the European sovereign debt crisis period. It also examines the role ofFDI, which though increasingly important in the flows of international production factors, is currently neglected by the literature. Preliminary results show thatFDIhas no direct effect onBCsynchronization while international trade helps to synchronizeBCs but only before the recent financial crisis (pre‐2008) and only for the traditionalEUcountries.
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