The effects of economic integration on the specialisation and geographical distribution of industrial activity in the EU countries

The theory of international trade and economic integration suggests that the progressive lifting of barriers to trade and the free circulation of factors, as entailed by a process of regional integration as far-reaching and extensive as that which has taken place among European countries, may considerably impact the productive structure of these countries by providing for a more efficient reallocation of production factors. The enlargement of markets accompanying this development may thus make for efficiency improvements by means of a greater harnessing of economies of scale or of the differences in factor endowment, helping bring about substantial changes in European countries’ productive processes. Further, the benefits of localisation, differences in labour skills and in the degree of innovation and of adaptation to new technologies, and many other factors currently differentiating the EU countries might have driven changes in the regional distribution of production in a setting of economic integration. The studies by Krugman (1991) for the United States showed that US industrial production was distributed very unevenly across the different states. Large industrial clusters located in specific regions contrasted with other areas where the presence of industry was rather insignificant. The disclosure of this industrial activity distribution pattern aroused some interest on the potential impact of the successive advances in European integration on the localisation of activity across Europe. Moreover, in a single monetary area the study of existing disparities in productive structures is of particular importance in that such disparities have a direct bearing on the degree of exposure to asymmetrical shocks, therefore having significant consequences for the pursuit of the single monetary policy. Finally, changes in the composition of industrial activity and in the spatial distribution of industry influence growth and the distribution of income across the countries participating in an integration project, potentially contributing to easing or exacerbating existing disparities. Hence, an analysis of the countries in which the production of the most dynamic sectors with the highest potential growth has tended to locate and of the determinants of these localisation patterns is pivotal for understanding real convergence processes. This paper aims to analyse the extent to which the ongoing process of integration of European countries may have affected their productive structures and, in this context, to frame the changes the Spanish economy has undergone. To do this, information on the production at current prices of the various manufacturing activities is used, drawn from the Eurostat Structural Business Statistics (sbs-plus) database. These figures are available for the period 1988-1998, in accordance with the 3-digit breakdown of the Statistical Classification of Economic Activities in the European Communities (NACE Rev.1). So as to obtain greater clarity in the presentation and discussion of the results, these activities have been grouped into 20 major branches which, in turn, are classified into four categories depending on whether their technological intensity is high, medium-high, medium-low or low. This classification is very useful when presenting the results since, traditionally, the most technologically intensive sectors are those showing more buoyant demand and greater growth potential, in addition to requiring higher skills from their employees. Conversely, the low-technology sectors are those with moderate demand and are unskilled-labour-intensive. Nonetheless, the period studied ended in 1998, so it is not possible to examine the changes that may have derived first, from a fully functioning European Monetary Union; further, from the liberalisation measures adopted with a view to the future enlargement of the EU towards the central and eastern European countries; and, finally, from the efforts made by many European countries to provide access and the adaptation of their economies to the new information and communications technologies, efforts which, as is known, have been on a most sizeable scale in recent years. With this information it is sought to quantify the specialisation of EU countries and the concentration of productive activity. In this respect, the concept of specialisation used in this article refers to how a country’s production is distributed among the different productive branches, compared with the rest of its trading partners, attempting to evaluate their degree of similarity to or divergence from the other EU countries (relative specialisation). The term concentration refers to how the production of a specific industry is distributed among the various countries considered, without taking into consideration the size of the manufacturing output of each of these countries (absolute concentration). In order to make a quantitative approximation to both aspects, the empirical literature has devised numerous measures or indices which draw together in a single value the degree of specialisation of the country or the degree of concentration of an industry, although none of these may be considered as optimal. This article presents exclusively the results obtained on using the Gini relative specialisation and absolute concentration indices. The Gini index is that habitually used to measure the degree of inequality of income distribution among individuals or households. The article is structured as follows. Section 2 briefly discusses the consequences arising from economic theory and the conclusions obtained by other papers on this subject. Section 3 then examines the characteristics of the productive specialisation of the EU countries and the changes undergone in the decade running from 1988 to 1998. This allows the existing differences or similarities in their productive structures to be established, helping ascertain whether these differences have tended to increase or ease off in recent years. The fourth section studies the geographical distribution of manufacturing activities in the European Union so as to determine which activities are more concentrated or more dispersed in the European geographical space and to evaluate whether this distribution has changed over time. Finally, the main conclusions of the paper are drawn.