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The Balassa Index meets the Theil Index - a Decomposition Methodology for Location Studies

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  • Eleonora Cutrini

Abstract

This paper focuses on the decomposition of location measures according to a twofold geographical level of analysis. The methodology, based on the use of the Theil dissimilarity index, is potentially applicable to the assessment of the spatial distribution of several economic phenomena when different hierarchical levels of analysis are considered. In the specific case, the entropy index considered is first defined as the weighed average of the log of regional Balassa indices. Thanks to the decomposability typical of the generalised entropy indices, the index constructed allows to disentangle the relative importance of country comparative advantages from regional competitiveness. The decomposition of relative concentration indices provides a rigorous method to quantify the cross-country divergence in localisation from the inner-country agglomeration patterns. Similarly, the construction of specialisation measures is intended to capture the different constituents at the national and sub-national levels. The paper ends with the decomposition of typical entropy obtained condensing relative concentration and relative specialisation into a single index.

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  • Eleonora Cutrini, 2005. "The Balassa Index meets the Theil Index - a Decomposition Methodology for Location Studies," ERSA conference papers ersa05p123, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa05p123
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    3. 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.
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    7. Karen Helen Midelfart-Knarvik & Henry G. Overman & Stephen Redding & Anthony J. Venables, 2002. "Integration and Industrial Specialisation in the European Union," Revue Économique, Programme National Persée, vol. 53(3), pages 469-481.
    8. Takahiro Akita, 2000. "Decomposing Regional Income Inequality Using Two-Stage Nested Theil Decomposition Method," Working Papers EMS_2000_02, Research Institute, International University of Japan.
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    10. Combes, Pierre-Philippe & Overman, Henry G., 2004. "The spatial distribution of economic activities in the European Union," Handbook of Regional and Urban Economics,in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 64, pages 2845-2909 Elsevier.
    11. Mitsuhiko Kataoka & Takahiro Akita, 2003. "Regional Income Inequality in the Post-War Japan," ERSA conference papers ersa03p480, European Regional Science Association.
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