Measurement of Specialization – The Choice of Indices

This paper compares nine common specialization indices, discussing their properties, strengths and weaknesses. In order to unravel the differences between the indices they are applied to European employment structures in 2005, spanning 51 industries and 24 European countries. The resulting heterogeneity levels differ largely between relative and absolute specialization measures, but also within these two groups of indices. As results are highly dependent on which measure is employed, it is important to be aware of carefully choosing appropriate indices in empirical studies in order to attain appropriate conclusions and conduct sound economic policy.