Sectoral specialisation in the EU a macroeconomic perspective

During the past two decades, the construction
of the Single Market and the inception of
Economic and Monetary Union (EMU) has led
to an increased integration of factor and product
markets. This deepening of European economic
integration is supposed to have induced
significant sectoral re-allocations, resulting in a
more efficient use of resources and fostering
economic growth.

The present section examines the production
structures in the EU and their dynamics over the
last two decades. It seeks to compare the
industrial structures and the speed of structural
adjustment²⁰ in the EU and the United States.
Finally, the analysis evaluates to what extent
sectoral specialisation patterns and their
dynamics have affected economic performance
through their impact on aggregate labour
productivity growth.

2.1 SECTORAL SPECIALISATION IN THE EURO
AREA AND THE EU

This first sub-section looks at the production
structures of EU countries and their dynamics
over the last two decades. Table 1 provides a
general overview of sectoral specialisation in
EU countries and changes in their production
structures over the last 20 years. In particular, it
shows the shares in gross value added at
constant prices of the main aggregate sectors
(agriculture, manufacturing, business sector
services and construction) for the years 1980,
1990 and 2001. Overall, it appears that the
share of agriculture, manufacturing and
construction have consistently decreased over
time. The corollary of this pattern was a
continuous increase in business sector services
relative to the whole economy. However, the
results for the individual countries with regard
to the manufacturing sector provide a more
mixed picture.

In order to obtain a more detailed picture
regarding the relative specialisation of EU
countries, Chart 3 plots the Krugman
specialisation index²¹ for the EU countries (for
a discussion of the sectoral specialisation and
industry concentration in Acceding Countries,
see Box 2). In addition, Table 2 reports industry
concentration indices across EU countries. The
two indicators were calculated using gross
value added at constant prices for the main
aggregate sectors and the whole economy, as
well as for different sub-periods between 1985
and 2001.

Overall, Chart 3 reveals that cross-country
differences in sectoral specialisation have been
rather limited in the EU²². The Krugman index
reveals some cross-country heterogeneity in the
degree of sectoral specialisation, with larger
countries - on average - being usually less
specialised with respect to the EU average, and
smaller countries being relatively more
specialised, with the exception of Germany and
Spain that are relatively more specialised with
respect to the EU and euro area average. This is
probably due to the fact that large countries
have a more diversified productive structure,
reflecting, at least in part, the fact that scale
economies may be exhausted for a larger
number of industries. In addition, changes in
sectoral specialisation across EU countries -
when they happened - were relatively slow. It
appears, therefore, that sectoral specialisation
has been broadly unchanged when considering

20 Throughout this report the notions “sectoral re-allocation” and
“structural adjustment” are used synonymously.

21 The Krugman specialisation index takes value zero if country I
has an industrial structure identical to the rest of the EU,
indicating that country I is not specialised, and takes a maximum
value of 2 if it has no sectors in common with the rest of the EU,
reflecting strong sectoral specialisation. The indicator can only
be seen as a relative specialisation compared with a benchmark,
which here is the EU; no absolute degree of specialisation can be
assessed with this measure. It should be noted that the Krugman
index has a tendency to under-represent the degree of
specialisation of large countries; this is highlighted for instance
when applying this index to EU regions (see for instance M.
Hallet (2000) - “Regional specialisation and concentration in
the EU” - Economic Paper 141, European Commission). See
Annex 4.2.1.1 for details of the construction of this index.

22 The indicator for the euro area presented in the above Chart is
significantly lower than an average of US regions (see P.
Krugman 1993, Geography and Trade, MIT Press Cambridge, p.
81). Moreover, comparing a selection of EU countries of similar
size with US regions, Krugman finds that when indicators are
constructed on a bilateral basis, they are systematically lower
among European countries than among US regions, amounting to
approximately 70% of US regional indicators.

ECB

Occasional Paper No. 19
July 2004

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