Jump to ContentJump to Main Navigation
Show Summary Details
More options …

Economics and Business

Open Access
See all formats and pricing
More options …

Common Cycles and Baltic-Nordic Economic Integration

Scott William Hegerty
Published Online: 2017-09-23 | DOI: https://doi.org/10.1515/eb-2017-0019


For centuries, Estonia, Latvia, and Lithuania have enjoyed historic and economic ties with their Nordic neighbors in the Baltic Sea region. While the period since 1991 has been one of increased integration with the European Union, trade linkages with Finland and Sweden are particularly strong for Estonia and Latvia, respectively. This study addresses these connections by applying time-series econometric techniques, with the goal of highlighting where regional connections are strongest. Strong Nordic-Baltic linkages, while providing evidence that historical factors are still important, might also suggest that integration with the rest of the EU is relatively weak. Using quarterly data from 1994 to 2014 for Baltic, Nordic, and other partner countries, business cycles are modeled for output, consumption, and investment. Common regional cycles are also extracted via Principal Components Analysis for the three Baltic countries and for the Nordic countries of Denmark, Finland, Norway, and Sweden. Cross-correlation functions are then generated for various cycle pairs to assess whether any are “synchronized.” One key finding is that the Nordic region has two possible consumption cycles that behave in very different ways, suggesting that this region does not behave as a coherent whole. Norway and Denmark drive one cycle, while Sweden and Finland drive the other. Another key result is that each Baltic country behaves differently from one another. While regional differences are quite large - making it harder to describe this as a single “region” at all - Estonia does show significant connections to Finland, its historic and linguistic neighbor.

Keywords: Baltic region; common cycles; Nordic region; principal components; Synchronization


  • Aastveit, K. A., Jore, A. S., & Ravazzolo, F. (2016). Identification and Real-Time Forecasting of Norwegian Business Cycles. International Journal of Forecasting, 32(2), 283-292. https://doi.org/10.2139/ssrn.2616800CrossrefGoogle Scholar

  • Artis, M. J., Fidrmuc, J. & Scharler, J. (2008). The Transmission of Business Cycles: Implications for EMU Enlargement. Economics of Transition, 16(3), 559-582. https://doi.org/10.1111/j.1468-0351.2008.00325.xCrossrefGoogle Scholar

  • Backus, D. K., Kehoe, P. J., & Kydland, F. E. (1994). Dynamics of the Trade Balance and the Terms of Trade: the J-Curve? American Economic Review, 84, 84-103. https://doi.org/10.3386/w4242CrossrefGoogle Scholar

  • Darvas, Z., & Szapáry, G. (2008). Business Cycle Synchronization in the Enlarged EU. Open Economies Review, 19(1), 1-19. https://doi.org/10.1111/rode.12134CrossrefGoogle Scholar

  • Di Giorgio, C. (2016). Business Cycle Synchronization of CEECs with the Euro Area: Regime Switching Approach. Journal of Common Market Studies, 54(2), 284-300. https://doi.org/10.1111/jcms.12302CrossrefGoogle Scholar

  • Fadejeva, L. & Melihovs, A. (2008). The Baltic States and Europe: Common Factors of Economic Activity. Baltic Journal of Economics, 8(1), 75-96. https://doi.org/10.1080/1406099x.2008.10840446CrossrefGoogle Scholar

  • Hegerty, S. W. (2010). Central European Business Cycles: Might Global (and local) Linkages Dominate Regional Ones? Eastern European Economics, 48(2), 56-73.CrossrefGoogle Scholar

  • Hodrick, R., & Prescott, E. C. (1997). Postwar U.S. Business Cycles: An Empirical Investigation. Journal of Money, Credit, and Banking, 29(1), 1-16. https://doi.org/10.4324/9780203070710.pt8CrossrefGoogle Scholar

  • International Monetary Fund. (2015). Output, consumption, investment, and price indices 1995 to 2014. Retrieved from International Financial Statistics online database.Google Scholar

  • Jiménez-Rodríguez, R., Morales-Zumaquero, A., & Égert, B. (2013). Business Cycle Synchronization between Euro Area and Central and Eastern European Countries. Review of Development Economics, 17(2), 379-395.CrossrefGoogle Scholar

About the article

Published Online: 2017-09-23

Published in Print: 2017-08-28

Citation Information: Economics and Business, Volume 31, Issue 1, Pages 70–81, ISSN (Online) 2256-0394, DOI: https://doi.org/10.1515/eb-2017-0019.

Export Citation

© 2017. This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License. BY-NC-ND 4.0

Comments (0)

Please log in or register to comment.
Log in