What Determines Relative Sectoral Investment Patterns in EU Regions?

Abstract

Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp0255.pdf Non-technical summaryThe preparation of EMU was accompanied by a broad discussion of potential core-periphery tendencies and asymmetric regional developments due to a possible increase in sectoral concentration and regional specialisation. Up to date, we have no clear indication concerning the specialisation tendencies to be expected due to increased factor mobility and market integration. This paper thus aims at providing insights into the spatial patterns of relative sectoral investments of EU regions and the driving forces of sectoral investment specialisation. Regional investment patterns are compared to average EU patterns in order to identify the relative sectoral investment specialisation of EU regions. The econometric analyses aim at identifying the regional determinants of high relative sectoral investments, i.e. the regional investment specialisation in different sectors. The importance of a number of determinants from different theoretical approaches is tested controlling for heteroscedasticity and potential endogeneity. Regional factor cost or productivity differentials are supposed to matter according to traditional trade theory. We find no evidence for the relevance of labour cost differentials, however, sectoral productivity differentials between regions generally contribute to the explanation of relative investment shares in the manufacturing sectors analysed.Since investments in most manufacturing sectors are attracted by those regions in central parts of each country and not by regions far away from the core, we might be confronted with backwash effects predicted by the polarisation theory for peripheral regions. In addition, the location close to large markets seems to matter for many manufacturing sectors. We find evidence of a further agglomeration potential in the manufacturing sectors due to the importance of the regional level of sector-specific economies of scale in the explanation of relative investment shares. Market integration, which according to the New Economic Geography (NEG) is supposed to enforce the agglomerative forces of economies of scale, however, does not play a particular role in any sector. Stirboeck (2002aStirboeck ( , 2002b provide evidence for the stronger relative regional specialisation of core as well as of peripheral regions. The results of our econometric analysis now demonstrate that the determinants of the high relative specialisation of peripheral regions differ from tho...

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