DP7152 The UK Intranational Trade Cycle

Author(s): Michael J Artis , Toshihiro Okubo

Publication Date: February 2009

Keyword(s): intranational business cycle , regional business cycles , income convergence , Hodrick-Prescott filter , Euro-sympathy

JEL(s): E32 , E41 , R11

Programme Areas: International Macroeconomics , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP7152.asp.asp

The paper uses annual data on real GDP for the UK regions and 12 manufacturing sectors to derive regional and regional/sectoral business cycles using an H-P filter. The cohesion of the cycles is examined via cross-correlations and comparisons made with the regional cycles for Japan, the United States and the EuroArea. The UK emerges as especially cohesive and efforts to explain the overall cross-correlations of regional GDP not very successful owing to the low variance of the explicand; when attention is turned to the sectoral/regional cycles, with their greater variance it is possible to demonstrate that economic variables such as distance, dissimilarity in structure and level of output play a significant role in explaining the variance in the cross-correlations. A significant feature of the cross-correlations in relation to those of EU countries is that whilst they continue to provide support for the “UK idiosyncrasy” they no longer do so as strongly as they did in earlier data samples.