JOURNALOFAPPLIEDECONOMETRICS

J.Appl.Econ.30:241–262(2015)

Publishedonline30October2013inWileyOnlineLibrary(wileyonlinelibrary.com)DOI:10.1002/jae.2364

HASTHEEURO-MEDITERRANEANPARTNERSHIPAFFECTED

MEDITERRANEANBUSINESSCYCLES?

FABIOCANOVAa,b*ANDALAINSCHLAEPFERc

ac

DepartmentofEconomics,EUI,Florence,Italy

b

CEPR,London,UK

DepartmentofEconomics,UPF,Barcelona,Spain

SUMMARY

Wedateturningpointsofthereferencecyclefor19Mediterraneancountriesandanalyzetheirstructureandinterde-pendencies.Fluctuationsarevolatileandnothighlycorrelatedacrosscountries;recessionsaredeepbutasynchronous,thedistributionofoutputlossesinrecessionsspreadout.Heterogeneitiesacrosscountriesandregionsaresubstantial.Cyclical uctuationsarepoorlyrelatedtotradeand nanciallinkages.MediterraneancyclesaretimevaryingbuttheirevolutionisnotlinkedwiththeEuro-Mediterraneanpartnershipprocess.Copyright©2013JohnWiley&Sons,Ltd.Received14March2012;Revised3September2013

Supportinginformationmaybefoundintheonlineversionofthisarticle.

1.INTRODUCTION

OneofthemainobjectivesoftheEuro-Mediterraneanpartnershipistoenhanceeconomicand nancialcooperationbetweenmembersandtocreateanareaofsharedprosperitythroughsustainedsocioeconomicdevelopment(seewww.1mpi.com).Toachievethisgoal,theEUhasestablishedpreferentialrelationshipswithnon-EUMediterraneanpartners,includingbilateralassociationagreementsandtheEuropeanneighborhoodpolicy(ENP).Bilateralassociationagreementstrytoestablishanareawithfreetradeandfree nancial ows,bothintermsofnorth–southandofsouth–southrelationships,andtocreateacommonregulatoryplatformamongpartnercountries.TheENPinsteadseekstocreateanareaofstability,prosperity,democracyandpeacefulsolutionofcon ictsbyofferingparticipatingcountriesastakeintheEUinternalmarkets,andsupportingeconomicconvergencetowardEUstandardswith nancialpackages(theso-calledENPIinstruments).

TheseassociationagreementsproducedstructuralreformsinanumberofMediterraneancountries—tradewasliberalized,entrybarriersforforeignbanksintodomestic nancialmarketsloweredandredtapeforstartingbusinessreduced—changingthecharacteristicsofthelocaleconomies.Forexample,theEUisnowthe rsttradingpartnerofMediterraneancountriesandMediterraneanpartners(excludingTurkey)accountforabout5%oftheoverallEUtradeingoods.Inaddition,inthelast5yearsMediterraneanexports(imports)totheEUincreasedby11%(8%)ayear,thefastest-growingpercentageofanycommercialareawiththeEUintheworld.Similarly,foreigndirectinvestmentsfromtheEUtothearea,whilestillsmallinvolume,havegrownattherateof10%ayear.

Drawingfromsimilarexperienceselsewhereintheworld,onecanconjecturethattheincreasedintercon-nectionwiththeEUwillhavepositivegrowtheffectsintheregion.However,increasedinterdependenciesarelikelytobringanimportantsideeffect:economieswhichinthepastwereinsulatedfromEUcyclical uctuationsarenowlikelytobemoreaffectedbythem.Inaddition,deeperinterdependenciesmayleadtonewspecializationpatterns,affectingtheemploymentlevelandthepro tabilityofcertainsectors.Thus

*Correspondenceto:FabioCanova,DepartmentofEconomics,EUI,ViadellaPiazzuola43,50133Florence,Italy.E-mail:fabio.canova@eui.eu