Adjustment dynamics of countries’ specialization patterns in the European Union

Abstract

We investigate the adjustment dynamics of countries’ specialization patterns in terms of labour market participation in manufacturing industries for the European Union. Using cointegration and error correction modelling techniques, we find that imbalances in European countries’ specialization are being set off at a rate of about 63% within the next period. Adjustment rates for Denmark, France, Germany and Spain are lower than for the entire EU. These patterns deliver valuable information about labour market rigidities and the suitability of a common monetary union in the European Union.

Keywords:

• new economic geography
• specialization
• European integration
• cointegration analysis

JEL Classification:

• C50
• F14
• F15

Notes

¹ Agglomeration refers to a sector’s geographical localization. Specialization refers to a region’s industrial structure.

² Note that we could only consider the countries for which all variables were integrated of the same order, and a cointegration relationship could be found.