EMU and the Industrial Specialisation of European Regions

Abstract

The formation of the currency union reduces transaction costs thereby incresing interregional trade links, changing the centrality of regions relative to other regions, and increasing (price) competition between regions. Each of these lines of influence affects the interregional division of labour, i.e., the industrial specialisation of regions. In an opposite direction, industrial specialisation of regions itself may significantly affect the susceptibility of regions to region-specific shocks, and the centre-periphery differential of regional incomes. It is influenced considerably by the integration process, and it determines what the results of this process on regions are. However, it is not yet clear what exactly will be the results of EMU with respect to specialisation since theoretical considerations (particularly on the base of the " new economic geography ") lead to rather contradicting predictions and empirical evidence on the process of European integration so far is sparse and inconclusive.