Academic journal article The European Journal of Comparative Economics

Specialisation and Convergence of European Regions

Academic journal article The European Journal of Comparative Economics

Specialisation and Convergence of European Regions

Article excerpt

Abstract

The purpose of this paper was to analyze specialization and convergence of European countries and regions, within the framework of integration in the EU. This is important not only for long-term real convergence processes, but also for a proper functioning of the monetary union (in the line of research on the OCA's criteria, asymmetry of shocks and synchronization of business cycles). The position of new member states is particularly delicate, also considering the forthcoming adoption of the euro by some of them. As indicated by the EU Treaty, economic growth should be balanced with economic and social cohesion that includes a careful consideration of regional disparities.

Our empirical investigation focuses on the regions of EU25, further broken up into other relevant groupings (EU15, EMU, and the new members' EU10 group), over the period from 1980 (or 1990 for EU10) to 2005. This paper considers a rather fine regional disaggregation (NUTS-2 level), counting 250 regions.

The analysis of different indices of specialisation point to a prevalent increase of homogeneity of sector structures across European regions, although in some cases (especially in the industrial sector and in some services) specialisation has increased.

For convergence, a sigma convergence's analysis confirms a reduction of disparities, both at a country and regional level. However, a trade-off between fast national growth and internal distribution has emerged in the early stages of development, as in the case of new members.

Moreover, beta convergence has also been established - regarding per capita income, employment and productivity - for almost all territorial aggregates (excluding the new members since 1999). The addition of structural variables, following a beta-conditional approach, indicates a positive role for services and a negative impact of agriculture. Finally, some preliminary results have been obtained by the innovative inclusion of specialisation indices within convergence regressions.

JEL Classification: R11, P52, O52

Keywords: regional economies, European regions, growth and convergence, specialisation

1. Introduction

Europe has recently experienced wide ranging and in depth integration. Considering the deepening aspect, the European Economic and Monetary Union (EMU) in 1999 and the circulation of the new common currency - the euro - since 1.1.2002 are the most momentous achievements, although some dark clouds have appeared since the arrest of the ratification process of the new Constitutional Treaty. Concerning the widening process, the 2004 enlargement was the most conspicuous in the EU's history. The ten new members are now adequately integrated in the single market and some of them are almost ready to adopt the euro as well.

The final goal of the EU2 - to be achieved through the common market and the economic and monetary union - also includes economic and social cohesion, both between members (as the mention of solidarity would indicate) and within themselves. This is testified by the weight given to regional policy3 and structural funds; and so regional convergence is an additional objective of EU.

The links between the two concepts - economic and monetary union (EMU) and economic and social cohesion (in particular regional convergence) are two-ways. On one hand, the EMU may be an instrument to achieve economic and social cohesion (but what is the evidence of the integration process so far?). On the other hand, economic convergence is also a prerequisite to accomplish an effective EMU.

Here, we do not refer to nominal convergence requirements (à la Maastricht), but rather to real convergence of European countries (and regions) as a condition to realize an advantageous EMU, as shown in the literature on optimum currency areas (OCA). We do not mean that real convergence - in per capita incomes, productivity, production and employment structures - is a prerequisite for the euro's adoption4, but rather that real convergence helps the effective working of EMU and raises net benefits of the union. …

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