The sources of cross-country output comovements : European and non-european linkages.

Summary This doctoral dissertation consists of three chapters studying cross-country linkages in different groups of industrialized economies. The first chapter shows that since the mid-1980s and mid-1990s, the share of the variance in the business investment cycle due to international common factors has increased in the United States as well as in the major European countries. The second chapter estimates the impact of the liberalization and internationalization of the banking and financial sectors on the common variations in real GDP growth. Since the late 1970s, a common international factor has contributed to the majority of economic growth in the EU countries, the United States, Canada, and Japan. Among several financial, banking and monetary indicators, equity prices followed by portfolio investments have been by far the most important determinants of this factor. The removal of controls on domestic credit appears to be the only financial liberalization measure that had a substantial and negative effect on common growth before 1995. The third chapter examines the sources of co-movements in real GDP among the founding countries of the euro area. Throughout EMU, real cycle synchronization was robustly related to disparities in fiscal policy and total factor productivity gains. Cycle synchronization was closely associated with similarity in unit labor cost growth before 2007, but not after 2007 when long-term interest rate differentials became a major cause of cyclical divergence.