Financial and Trade Integration of Selected EU Regions: Dynamic Correlation and Wavelet Approach

We evaluate the relation between financial and trade integration in new (formerly central-planned economies) and old (developed) EU countries. Classical and moving correlation shows the strong relation in the pre-crisis period. Dynamic correlation confirms strong relation for long and business cycle frequencies. Specification via wavelet cospectrum reveals that the long frequencies are correlated in 2000-09, business cycle frequencies in 1993-94, 2003-04 and middle frequencies generally in 2008-2010. The process of financial integration was stronger in the old EU member countries, the process of trade integration in the new member countries. The progress was smaller in financial compared to the trade integration. Classification-JEL: E44, F15, F21, F36, G15, C23, C36