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Structural Change and Convergence

An Empirical Analysis of Production Structures in Europe

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Nicole Palan

This book studies both the causes and effects of country specialization and industry concentration. First, a detailed literature review of both theoretical and empirical work is given. Second, the most important indices used in studying the heterogeneity of countries and industries are analyzed. The book discusses the (dis-)advantages of these indices in detail and shows how empirical results depend on the index chosen. Third, the book studies the economic development of individual industries in detail and identifies crucial structural breaks in the development paths. Last, the heterogeneity across Western European countries is analyzed and the countries are assigned to individual clubs. In doing so, this book examines the similarity of countries in their economic development and identifies the drivers of these processes.

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4 The Location of Industries in Western Europe

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16 4.1 Introduction At the beginning of our observation period in 1970, the European Economic Community (EEC) only comprised the six founding members, i.e. Belgium, France, Germany, Italy, Luxembourg and the Netherlands. These countries cre- ated a customs union that already comprised a large number of industries and also set up common agricultural and trade policies (Molle 2006).17 Although in- tra-European quotas and tariffs were abolished, many non-tariff barriers re- mained to exist due to differences in national regulations (e.g. with regard to product standards, licensing procedures, indirect taxation) hindering the creation of trade and specialization. Moreover, at that time the mobility of labour was restricted since different school and university degrees were not easily recog- nized in all other member states. In the first half of the 1980s the European Commission aimed to complete the integration of product (for both goods and services) and factor (both capital and labour) markets, thereby setting an end to the fragmentation of Western European economies; the object was to complete the internal market by 1992, as laid out in the Single European Act of 1986. As stated in Article 159 EC, the objectives are the following: higher competiveness by speeding up structural change and altering the specialization profile of coun- tries towards high-wage and high-growth industries and facilitating the exploita- tion of both economies of scale and scope (also by fostering co-operations among firms). With regard to the free movement of goods and capital, full mar- ket integration has been realized, whereas...

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