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Comparing Sectoral Investment and Employment Specialisation of EU Regions: A Spatial Econometric Analysis

Listed author(s):
  • Claudia Stirboeck


EMU is accompanied by increased market integration and factor mobility ? especially of the production factor capital. Up to date, there is no clear indication concerning the specialisation tendencies to be expected due to these impacts. This paper thus investigates the driving forces of sectoral investment specialisation of EU regions. Regional investment patterns are compared to average EU patterns in order to identify the relative sectoral investment specialisation of EU regions. The econometric analyses aim at identifying the regional determinants of high relative sectoral investments, i.e. the regional investment specialisation in different sectors. The importance of a number of determinants from different theoretical approaches is tested controlling for heteroscedasticity, potential endogeneity and spatial autocorrelation. Regional factor cost or productivity differentials are supposed to matter according to traditional trade theory. Sectoral productivity differentials between regions generally contribute to the explanation of relative investment shares in the manufacturing sectors analysed. We also find evidence for the relevance of regional labour cost differentials. Relative investment specialisation in some traditional, labour intensive sectors is higher in those regions profiting from low average labour costs. Relative investment shares in a number of capital intensive or skill intensive sectors, instead, are higher in regions marked by higher average labour costs. Since investments in most manufacturing sectors are attracted by those regions in central parts of each country and not by regions far away from the core, we might be confronted with backwash effects predicted by the polarisation theory for peripheral regions. In addition, the location close to large markets seems to matter for many manufacturing sectors. Market integration, which according to the New Economic Geography (NEG) is supposed to enforce agglomerative forces, however, does not play a particular role in the different kinds of sectors. In earlier studies, we found evidence for the stronger relative regional specialisation of core as well as of peripheral regions. The results of this econometric analysis now demonstrate that the determinants of the high relative specialisation of peripheral regions differ from those of economic centres. The driving forces of investment specialisation are favourable for core regions with respect to growth-oriented market services. In addition, stronger relative investment shares of peripheral regions in non-market services as well as building & construction point to their high dependence on non-market economic activities and to their poor economic performance. Important manufacturing sectors are rather attracted by regions with higher average labour costs ? probably reflecting the need for high-skilled labour. Lowering the regional level of labour costs thus does not seem to be an adequate measure of attracting manufacturing production of growth industries.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa03p259.

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Date of creation: Aug 2003
Handle: RePEc:wiw:wiwrsa:ersa03p259
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  1. Elisenda Paluzie & Jordi Pons & Daniel Tirado, 2001. "Regional Integration and Specialization Patterns in Spain," Regional Studies, Taylor & Francis Journals, vol. 35(4), pages 285-296.
  2. Stirböck, Claudia, 2002. "Relative specialisation of EU regions: an econometric analysis of sectoral gross fixed capital formation," ZEW Discussion Papers 02-36, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June.
  4. Caves, Richard E, 1974. "Causes of Direct Investment: Foreign Firms' Shares in Canadian and United Kingdom Manufacturing Industries," The Review of Economics and Statistics, MIT Press, vol. 56(3), pages 279-293, August.
  5. Krieger-Boden, Christiane, 1999. "Nationale und regionale Spezialisierungsmuster im europäischen Integrationsprozeß," Open Access Publications from Kiel Institute for the World Economy 2294, Kiel Institute for the World Economy (IfW).
  6. Mary Amiti, 1999. "Specialization patterns in Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(4), pages 573-593, December.
  7. Stirböck, Claudia, 2001. "Agglomeration tendencies in EU regions: where does capital go?," ZEW Discussion Papers 01-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Lall, Sanjaya & Siddharthan, N S, 1982. "The Monopolistic Advantages of Multinationals: Lessons from Foreign Investment in the U.S," Economic Journal, Royal Economic Society, vol. 92(367), pages 668-683, September.
  9. Ronald S. Saunders, 1982. "The Determinants of Interindustry Variation of Foreign Ownership in Canadian Manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 15(1), pages 77-84, February.
  10. K.H. Midelfart & H.G. Overman & S.J. Redding & A.J. Venables, 2000. "The location of European industry," European Economy - Economic Papers 2008 - 2015 142, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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