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Economic integration and specialization in production in the EU27: does FDI influence countries’ specialization?

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  • Natalia Vechiu
  • Farid Makhlouf

Abstract

The objective of this article is twofold. Firstly, we proceed to an analysis of the evolution of specialization in production in the enlarged EU, taking into account all its 27 member countries. Given their decomposability properties, we use the entropy-based indices to measure countries’ relative specialization and then, given our rather short period of analysis, we use the bootstrap method to analyze the evolution of the specialization index. We first analyze all economic sectors and then, our analysis is more detailed focusing on manufacturing industries. Globally, we find that specialization is decreasing across all economic sectors, while it is increasing across manufacturing industries. Secondly, we study specialization determinants, with a special interest in the impact of foreign direct investment (FDI). For homogeneity reasons, we analyze two separate samples, one including old EU members plus Cyprus and Malta and the other, the CEECs. In order to take into account the endogeneity of most of our independent variables, we use the vector autoregression (VAR) technique and analyse the impulse response functions. Globally, FDIs seem to positively influence countries’ relative specialization, for our both samples and for both economic sectors and manufacturing industries. However, their impact appears weaker than most of the other independent variables, such as the market potential or the relative endowments. Copyright Springer-Verlag Berlin Heidelberg 2014

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  • Natalia Vechiu & Farid Makhlouf, 2014. "Economic integration and specialization in production in the EU27: does FDI influence countries’ specialization?," Empirical Economics, Springer, vol. 46(2), pages 543-572, March.
    • Handle: RePEc:spr:empeco:v:46:y:2014:i:2:p:543-572
    DOI: 10.1007/s00181-013-0682-9
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    3. Eleonora Cutrini & Ben Gardiner & Ron Martin, 2023. "EU integration and the geographies of economic activity: 1985–2019," Environment and Planning A, , vol. 55(2), pages 274-302, March.

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    More about this item

    Keywords

    Entropy; Specialization; Foreign Direct Investment; European Union; F15; F21; F41;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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