Cross-Border Production Chains and Business Cycle Co-Movement between Central and Eastern European Countries and Euro Area Member States

41 Pages Posted: 11 Feb 2014

See all articles by Plamen K. Iossifov

Plamen K. Iossifov

International Monetary Fund (IMF) - African Department

Date Written: January 20, 2014

Abstract

In this paper, we highlight the role of global value chains in the synchronization of economic activity between countries in Central and Eastern Europe (CEE) and the euro area. We start off by demonstrating that the degree of synchronization of the business cycles of CEE countries and their main trade partners from the euro area has increased in recent years. We next show that the cyclical fluctuations of GDP in CEE countries are strongly influenced by pro-cyclical movements of changes in inventories. We then present evidence of the importance of cross border production chains for the economies of CEE countries. We build on these findings to show that the propagation of changes in demand for imports along global supply chains — linked to technological requirements and inventory stock adjustments — contributes to the synchronization of economic activity across Europe. We also show evidence that CEE exporters have started to set up their own value chains in the CEE region.

Keywords: lobal value chains, cross-border production chains, business cycle, inventories, Central and Eastern European countries, CEE

JEL Classification: E32, F44, F62, O52

Suggested Citation

Iossifov, Plamen K., Cross-Border Production Chains and Business Cycle Co-Movement between Central and Eastern European Countries and Euro Area Member States (January 20, 2014). ECB Working Paper No. 1628, Available at SSRN: https://ssrn.com/abstract=2381863 or http://dx.doi.org/10.2139/ssrn.2381863

Plamen K. Iossifov (Contact Author)

International Monetary Fund (IMF) - African Department ( email )

1700 19th Street, NW
Washington, DC 20431
United States

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