Homogeneous, Urban Heterogeneous, or both? External Economies and Regional Manufacturing Productivity in Europe
The objective of this paper is to analyse theoretically and empirically the effects of sectoral homogeneity and urban heterogeneity on regional manufacturing “pure” productivity differentials. Hypotheses of the existence and co-existence of the two types of external effects are formulated and tested for the regions of 13 Western EU countries by means of panel data spatial econometric techniques. The outcomes clearly support our conjectures and also reveal how a simply strong manufacturing sector, i.e., not accounting for internal specialisation, may be harmful to productivity. This result, and the existence of heterogeneous externalities, are confirmed for a sample of regions extended to Eastern European countries.
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