Sectoral specialisation in the EU a macroeconomic perspective

Table 11 Sector contributions to business cycle convergence of EU countries

Sources: Eurostat, NCBs, ECB calculations.

Notes: Estimates are based on fixed effects (within) estimations with an AR(1) disturbance. See Annex 4.2.2.3 on the way the table has
been set up.

+ : Sectoral contribution to business cycle convergence significant at the 5% level.

- : Sectoral contribution to business cycle divergence significant at the 5% level.

0 : No significant sectoral contribution to business cycle convergence.

the different sectoral contributions across EU
countries to business cycle convergence among
member countries between 1980-2001.

The table indicates whether sectoral cyclical
convergence has contributed (indicated by “+”)
or not (“0”) to business cycle synchronisation
across EU countries; in two cases a contribution
to business cycle divergence is indicated (“-”).
As can be seen from the table, industry and
trade have contributed consistently to business
cycle convergence throughout the entire period,
while finance contributed mainly at the end of
the 1990s to business cycle synchronisation.
Construction and business activities, on the
other hand, contributed only in two sub-
periods, while agriculture and public services
contributed significantly to business cycle
synchronisation only in one sub-period.

Estimations for the sectoral contributions for
the four sub-periods show that business cycle
convergence was strongest during the early
1980s and the early 1990s, when almost all
sectors contributed to aggregate business cycle
synchronisation.

3.4 SECTORAL CO-MOVEMENTS

Despite persistent differences in sectoral
specialisation, the preceding sections
documented business cycle synchronisation
among EU countries. One explanation may be
the existence of co-movements of different
sectors. Following earlier research⁵², this
section aims at identifying the importance of
sectoral co-movement in EU countries and its
evolution over the period 1980-2001.

Sectoral co-movement can mitigate the negative
impact of sectoral specialisation on the
harmonisation of business cycles across EU
countries. Following earlier work by Christiano
and Fitzgerald (1998), sectoral co-movements
were determined for a subset of countries in
order to evaluate to what extent different
sectors move together over the period under
consideration. In turn, this will also provide a
different angle for assessing which of the
sectors contributed most to aggregate business
cycle synchronisation during the last decade.
Table 12 gives an overview of the evolution of
business cycle co-movements between 1980-90
and 1991-2001.

Across the board, the sectors industry and trade
(with Belgium being the only exception)
contributed the most to sectoral co-movements,
while agriculture and - to a lesser extent -
finance saw relatively low sectoral co-
movement. Construction was more varied,
closely following the aggregate business cycle

52 L. J. Christiano and T. J. Fitzgerald (1998), “The Business Cycle:
It’s Still a Puzzle”, Economic Perspectives, Federal Reserve
Bank of Chicago, Fourth Quarter.

ECB

Occasional Paper No. 19

July 2004

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