Digital Media

Abstract

This study explores the business confidence indicator dynamics in the nineteen European Union (EU) countries with an interdisciplinary social sciences perspective. The social identity approach predicts that: (i) the political factor-government instability is a crucial element in the business confidence formation process. (ii) the international lead-lag relationship holds for business confidence indicator in European Union. The empirical analysis using aggregate-level data provides empirical support to these predictions. This study argues that international confidence spill over channel information friction might exist because of fast growth in wiring capacity and low costs in the acquisition of information. This study finds that the lagged Germany, France, U.S. and China business confidence indicators have signiﬁcant prediction ability in European Union (EU) countries. The theoretical and empirical content of this paper offers potentially valuable perceptions of the confidence dynamics.