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To what extent and why is the European manufacturing industry becoming more localised (regionally concentrated)?

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Downloads to date: N/A | Words: 1200 | Submitted: 2005-02-08

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The evidence on whether the European manufacturing industry is becoming more concentrated is mixed. Amiti in survey of both country and industry specific concentration finds that there is a general trend towards increasing concentration in terms of both countries and industry. However, there are significant exceptions the UK, France and Spain have become less concentrated and certain industries have seen large declines in concentration, notably other chemicals. Brulhart also finds evidence of concentration particularly in more labour intensive industries such as clothing. However, Alginger and Davies find that concentration has decreased in the 1990’s although specialisation has increased, this result may seem counter intuitive but they account for this using new economic geography. M-KOV find that there is little overall trend in concentration, however, nearly all authors find that there was a trend towards concentration during the 1980’s. Therefore there is ambiguity as to whether European manufacturing is becoming more concentrated, the overall there seems to be more evidence pointing towards concentration particularly in industries with increasing returns to scale and in countries with good market access.

There are three clear strands of economic theory explaining the potential for increasing concentration within the European manufacturing sector, these are neoclassical trade theory, new trade theory and new economic geography. The falling trade costs within the EU, which have not only occurred through the removal of tariffs but also the reduction in transport costs provides a great opportunity to test which of the models has the best explanatory power of changes in concentration within the EU.
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