Integrating in the EU or in the World?

Economic theory suggests that the degree of cyclical synchronisation is related to the degree of economic integration and structural similarity between countries. In gauging changes in the synchronisation of countries’ business cycles and the underlying driving factors, it is important to distinguish EU/specific developments from worldwide integration tendencies, i.e. globalisation. The effects of goods and capital market integration on business cycle synchronisation are theoretically ambiguous. The net effect is composed of a synchronisation-enhancing effect on the demand side of the economy, and a synchronisation-diminishing effect on the supply side resulting from increased incentives for specialisation.