The Importance Of Services In Shaping The Volatility And Synchronization Of Regional Business Cycles: A Comparative Analysis Of The Polish And Portuguese Economies

The aim of this article is to assess the role of services in stabilizing the volatility and the degree of synchronization of regional business cycles. The existing literature points to the relevance of services in smoothing business cycles. However, services can also play a negative role in stabilizing the economy, as the COVID-19 pandemic demonstrated. Among a variety of services, tourism plays a special role; it can act as a stabilizer during a typical business cycle or become a source of strain in the event of an exogenous shock, such as the COVID-19 pandemic. The study focuses on the regions of two countries – Poland and Portugal – which differ in both the share and the structure of services in their regional GDP, which affects their resistance to changes in the economic environment. To examine this, such parameters of analysed business cycles were calculated, like: cycle length, phase length, coherence ratio, standard deviation ratio, coefficient of variation ratio, mean delay, cross-correlation ratio and average amplitude of upward and downward phases. The conducted analysis has shown that Polish and Portuguese regions exhibit varying degrees of resilience to business cycle fluctuations. Differences are also observed in the level of synchronization of regional cycles in both countries. Overall, the higher share of services in the regional GDP of Portugal translates into greater resilience to cyclical changes compared to the volatility observed in Polish regions. At the same time, Portuguese regions are more synchronized in terms of the phases of the business cycle. This may stem from the relatively higher share of services in GDP, particularly tourism services, in Portugal's economy (11.9% of GDP) compared with Poland (2.2%).