What Determines the Economic Geography of Europe?

Abstract

This paper focuses on what the driving forces behind industry localisation in\nEurope are. Based on traditional as well as new trade theory and new economic geography our\ncross-sectoral empirical analysis seeks to explain the pattern of relative and absolute\nconcentration of manufacturing activity. By comparing impact over time, we also consider\nwhether the single market has had an influence on factors determining localisation. The results\nindicate that the by far most important determinant of economic geography in Europe is\nlocalisation of demand. There is also evidence of cumulative causation in the sense that absolute concentration of production and expenditure mutually influence each other.

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