Industrial Specialisation and Geographic Concentration: Two Sides of the Same Coin? Not for the European Union

Journal of Applied Economics, Vol. VII, No. 2, pp. 231-248, November 2004

Posted: 30 Dec 2004

See all articles by Karl Aiginger

Karl Aiginger

Austrian Institute of Economic Research (WIFO)

Stephen Davies

Financial Services Authority - Regulatory Strategy and Risk

Abstract

Some recent studies have shown that specialisation of countries has tended to increase, while regional concentration of countries has tended to decrease. This seems to be counterintuitive at first glance. In this paper, we use the entropy index - as the indicator of structural change with the neatest aggregation properties to show how this divergence can happen. The main purpose of the paper is methodological, but we also apply the methodology to a specific case study: Manufacturing in the European Union since 1985. We confirm for this interesting period that increasing industrial specialisation has been offset by faster growth in the smaller Member States, with the net effect that industries have become somewhat less geographically concentrated. In terms of economic geography the evidence is in line with the second part of the inverted U-curve (where decreasing transport costs eventually foster de-concentration). This is no contradiction to increasing specialisation of countries in specific industries as predicted by many models in the old as well as the new trade theory.

Keywords: Structural change, geographical concentration, industrial specialisation, European integration, entropy

JEL Classification: F02, F15, L60

Suggested Citation

Aiginger, Karl and Davies, Stephen, Industrial Specialisation and Geographic Concentration: Two Sides of the Same Coin? Not for the European Union. Journal of Applied Economics, Vol. VII, No. 2, pp. 231-248, November 2004, Available at SSRN: https://ssrn.com/abstract=637225

Karl Aiginger (Contact Author)

Austrian Institute of Economic Research (WIFO) ( email )

P.O. Box 91
Wien, A-1103
Austria

Stephen Davies

Financial Services Authority - Regulatory Strategy and Risk

25 North Colonade
Canary Wharf
London E145HS
United Kingdom

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