Regional Integration, Scale Economies and Industry Location in the European Union

Marius Brülhart

No 1435, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses the effects of regional integration on the location of increasing-returns industry and the resulting pattern of trade. Theoretically, it is shown that regional integration may initially lead to a dispersion of industry inside the customs union. Below a certain threshold of internal trade costs, however, industry concentration in the central member country will again increase. This non-monotonic relationship with regional integration also applies to equilibrium levels of intra-industry trade (IIT). A strictly monotonic negative relationship is found between, on one hand, the degree of scale economies and, on the other hand, industrial concentration both in the central country and intra-union IIT. Empirical evidence for the European Union lends support to some of the theoretical predictions. Employment in scale-intensive industries tends to be concentrated at the centre of the EU, and IIT is relatively low in these sectors. An IIT growth reversal is detected for the scale-intensive industries, which supports the non-monotonicity predicted by the model.

Keywords: Economic Geography; European Union; Regional Integration; Scale Economies (search for similar items in EconPapers)
JEL-codes: F12 F15 R12 (search for similar items in EconPapers)
Date: 1996-07
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Citations: View citations in EconPapers (64)

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