The Single Market and Geographic Concentration in Europe

The stylized fact that regional concentration is lower in Europe than in the USA has led to the prediction that the creation of the Single Market might increase spatial concentration in Europe. This has raised some fears that the social and political burden of rapid change might counterbalance the economic gains, that the core might win to the detriment of the periphery, and that concentration of industry might make countries more vulnerable to asymmetric shocks in the Monetary Union. This paper uses a new disaggregated dataset to substantiate whether spatial concentration increased during the 1990s. Most other studies have not extended beyond the early 1990s or have used less comprehensive and detailed datasets. The main result is that geographic concentration did not increase, but rather decreased during the 1990s. Industrial patterns of geographic concentration and its dynamics partly conformed to the hypotheses provided by economic geography, trade theory, and industrial organization.