Clusters in weighted macroeconomic networks : the EU case. Introducing the overlapping index of GDP/capita fluctuation correlations

TL;DR

This paper analyzes the clustering of EU countries based on GDP per capita correlation networks over time, introducing an overlapping index to better understand the structure and evolution of macroeconomic relationships within the EU.

Contribution

It introduces an overlapping index for weighted macroeconomic networks and applies spectral analysis to reveal cluster structures among EU countries from 1990 to 2005.

Findings

Identification of stable and evolving clusters of EU countries

Introduction of the overlapping index as a new network measure

Spectral analysis reveals macroeconomic structure and stability

Abstract

GDP/capita correlations are investigated in various time windows (TW), for the time interval 1990-2005. The target group of countries is the set of 25 EU members, 15 till 2004 plus the 10 countries which joined EU later on. The TW-means of the statistical correlation coefficients are taken as the weights (links) of a fully connected network having the countries as nodes. Thereafter we define and introduce the overlapping index of weighted network nodes. A cluster structure of EU countries is derived from the statistically relevant eigenvalues and eigenvectors of the adjacency matrix. This may be considered to yield some information about the structure, stability and evolution of the EU country clusters in a macroeconomic sense.