External economies as a mechanism of agglomeration in EU manufacturing

Abstract

Productive externalities are significant determinants of agglomeration, not deeply studied at the industry and international level. We analyse the impact on productivity growth of technological externalities, both inter- and intraindustry, national or international, at the industry level for the EU countries and the period 1995–2002. The results confirm the advisability of considering international externalities when countries are taken as regions, whose omission underestimates national spillovers. Together with national endowments and a central geographical position, the growth of productivity is encouraged by national and international specialization as a general result; moreover, it is fuelled by stronger interindustry spillovers and productive diversification, a result more evident for high technology industries, while lower technology industries are more sensitive to the omission of international externalities. Economic integration seems to be relevant, because supranational regions with less friction for goods and factor movements are more likely to take advantage of external economies as a mechanism of productivity growth and agglomeration.

Keywords:

• external economies
• economies of agglomeration
• geography
• productivity
• EU countries

JEL Classification::

• F14
• O14
• O47
• R12

Notes

¹ For an exhaustive review, see Rosenthal and Strange (2004) or Duranton and Puga (2004).

² See ‘http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/Data/Gravity/ dist.txt’.

³ The widest sample available is that of Austria, Belgium, Germany, Denmark, Spain, Finland, France, Greece, Italy, the Netherlands, Portugal and Sweden.

⁴ Sweden and Finland experience faster concentration in other industries and Greece a faster diversification. Greece also shows a slower – even negative – national intraindustry externality.

⁵ We have found a negative correlation between international specialization (E) and dynamism in other industries’ growth ().

⁶ In all industries but the transport sector (13) capital endowments per worker are important determinants of productivity growth.

⁷ For a survey of the theoretical and empirical literature about the relationship between knowledge spillovers and differentials in growth see Döring and Schnellenbach (2006).

⁸ Argentina, China, Costa Rica, Ecuador, Israel, Morocco, Russian Federation, Singapore and Tunisia.

⁹ For the non-EU countries, international specialization is significant only for leather and its products (3) and machinery and other equipment (11), and geography is significant for textiles and their products (2). But this behaviour for these sectors is common for both EU and non-EU subsamples.