Specialisation changes in European regions: the role played by externalities across regions

This paper seeks to determine the factors underpinning changes in regional specialisation patterns in the European Union between 1991 and 2002. First, we consider a set of determinants previously identified in the regional literature, including agglomeration effects and other specific regional factors (business cycle, amount of investment, etc.). However, we then also take into account the fact that the evolution in a region’s specialisation pattern may be affected by the specialisation behaviour of other regions. Thus, not only do we consider the pattern of evolution in a region’s most proximate neighbours but we also examine that of their regional peers, i.e., regions with a similar specialisation pattern independent of their location. Notwithstanding, our empirical evidence indicates that physical distance still plays a very significant, and even more influential, role than similarity in specialisation.