The determinants of regional specialisation in business services: Agglomeration economies, vertical linkages and innovation

Abstract

The article accounts for the determinants of sectoral specialisation in business services (BS) across the EU-27 regions as determined by: (i) agglomeration economies (ii) the region-specific structure of intermediate linkages (iii) technological innovation and knowledge intensity and (iv) the presence of these factors in neighbouring regions. The empirical analysis draws upon the REGIO panel database over the period 1999-2003. By estimating a Spatial Durbin Model, we find significant spatial effects in explaining regional specialisation in BS. Our findings show that, besides urbanisation economies, the spatial structure of intermediate sectoral linkages and innovation, in particular Information and Communication Technologies (ICTs), are important determinants of specialisation in BS. The article contributes to the debate on the global versus local determinants of regional specialisation in BS by restating the importance of the regional sectoral structure besides that of urbanisation. We draw policy implications by rejecting the 'footloose hypothesis' for BS.