Trading Places: Industrial Specialization in the European Union*

This article examines the location of manufacturing industries in the European Union. It draws on intra-industry trade measures for 1961–90 and on sectoral employment data by countries and regions. The analysis of employment data suggests that EU industry has become increasingly localized in the 1980s. Increasing-returns industries are strongly concentrated at the economic core of the EU and display low levels of intra-industry trade. High-tech industries are also strongly localized, but show no centre–periphery gradient and no specific pattern of intra-industry trade. The main potential for future specialization appears to remain in sectors sensitive to labour costs, which are still relatively dispersed and have high levels of intra-industry trade. Employment in these industries is shifting towards the EU periphery. ‘Neoclassical’ determinants of international specialization are thus likely to dominate the ongoing adjustment process in EU manufacturing. * I am grateful to Robert Elliott, Dermot McAleese, Johan Torstensson, Paul Walsh and an anonymous referee for valuable comments. Part of the research was financed by the Stimulation Plan for Economic Sciences of the European Union (SPES-CT91-0058).