Specialization and KIBS in the Euro area: a vertically integrated sector perspective

ABSTRACT

The imbalances among countries belonging to the European Monetary Union (EMU) have been analysed under several angles in recent years, but often neglecting the evolution of economic and productive structures. In this work, we aim to fill this gap analyzing the countries specialization through the differences in the inter-industrial linkages that affect economic systems competitiveness and production processes. We use the input-output subsystem approach exploiting the latest WIOD release (2018) to investigate the role of business services, with a special focus on KIBS, in shaping the EMU countries productive structures through their integration in the manufacturing sectors. The results show that disparities are growing in the composition of productive structure and they are even more pronounced when we consider intersectoral dynamics; in particular, when KIBS are addressed to satisfy the manufacturing final demand and when we control for manufacturing subsystem technological intensity.

KEYWORDS:

• KIBS
• manufacturing
• input-output
• EMU
• specialization

JEL CLASSIFICATION:

• F45
• O14
• P5

Acknowledgements

We would like to offer thanks to the participants of the following conferences for their valuable comments: AISRe 2018, Bolzano - Italy; Euromemo 2018, Helsinki - Finland; Astril 2018, Rome - Italy; International Conference Developments in Economic Theory and Policy 2019, Bilbao - Spain.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. The definition of KIBS generally includes (ISIC Rev. 4): Computer programming, consultancy and related activities, information service activities; legal and accounting activities, activities of head offices, management consultancy activities; architectural and engineering activities, technical testing and analysis; scientific research and development; advertising and market research; other professional, scientific, administrative and technical activities.

2. The evidence, as shown in Table 1, holds both before and during the economic crisis.

3. The same index can be calculated, more traditionally, by sectors, as also reported in Table 2, in which KSI is the traditional Krugman Specialization Index calculated by sectors.

4. We have a confirmation of this trend, also applying the coefficient of variation – the so-called sigma convergence – (calculated as the ratio between standard deviation and arithmetic mean in the share of manufacturing among the EMU19 countries).

5. In our comments, we refer to the two sub-periods as pre-crisis (2000–2008) and crisis (2008–2014), since after the Great Recession, several EMU countries (mainly southern ones), and among them two of the largest (Spain and Italy) experienced a period of severe economic turmoil due to the Sovereign Debt Crisis. In addition, the effects of the Great Recession lasted some years after its burst in EMU countries.

6. The changes in trade relationships among the EMU countries may also be considered factors at the basis of both manufacturing and KIBS integration dynamics; however, we are not analyzing it in the present paper, leaving the deepening of this issue to future works.

7. The largest countries seem to reduce their disparities both in terms of LT-MLT shares and of KIBS integration; some small countries like Portugal and Greece increase their divide with respect to other countries in terms of LT-MLT shares.