Working Paper: CEPR ID: DP2072
Authors: Jan I. Haaland; Hans Jarle Kind; Karen Helene Midelfart Knarvik; Johan Torstensson
Abstract: This paper focuses on what the driving forces behind industry localisation in Europe are. Based on traditional as well as new trade theory and new economic geography our cross-sectoral empirical analysis seeks to explain the pattern of relative and absolute concentration of manufacturing activity. By comparing impact over time, we also consider whether the single market has had an influence on factors determining localisation. The results indicate that the by far most important determinant of economic geography in Europe is localisation of demand. There is also evidence of cumulative causation in the sense that absolute concentration of production and expenditure mutually influence each other.
Keywords: industrial localization; agglomeration; comparative advantage; economic geography
JEL Codes: C21; F14; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Localization of demand (R22) | Increased production concentration (D29) |
| Strong intra-industry linkages (L69) | Higher absolute concentration (D30) |
| Comparative advantage (F11) | Relative concentration (D30) |
| Skill-intensive industries (J24) | Concentrate in countries with higher proportion of skilled labor (J24) |
| Higher trade costs (F12) | Industries cluster near larger markets (R32) |