The location of European industry

Karen-Helene Midelfart, Henry G. Overman, Stephen J. Redding and Anthony J. Venables* INTRODUCTION Closer European integration is likely to bring with it major changes in industrial location. Industries will move to exploit differences in countries’ comparative advantages and, even if such differences are small, integration may change the attractiveness of central areas relative to peripheral ones and may facilitate the clustering of activities that benefit from linkages with each other. There are many reasons to welcome such changes. The gains from exploiting comparative advantage can only be achieved by industrial relocation, and clustering brings economic benefits as firms gain better access to suppliers and other complementary activities. But relocation will typically involve short-run adjustment costs before the long-run benefits are achieved. Specialisation may also make countries more vulnerable to the effects of shocks in particular industries, which will be costly if crosscountry adjustment mechanisms are inadequate. The objectives of this chapter are to describe the changes in industrial location that have occurred in Europe in recent decades; to establish whether these are associated with countries’ economic structures becoming more or less similar, and industries becoming more or less spatially concentrated; to compare industrial location patterns in Europe and the US; and to identify the underlying forces that determine industrial location and assess the extent to which these have changed in recent years. Our main findings are as follows. • Most European countries showed significant convergence of their industrial structure during the 1970s, but this trend was reversed….