The Impact of European Integration and Enlargement on Regional Structural Change and Cohesion

The overall scientific objective of this project was to identify and explain in a crosscountry analysis the impact of deepening and widening of economic integration on regional structural change and cohesion in current European Union (EU) member states and accession countries. A summary of our main research results is given below. These findings provide a basis for the evaluation of the likely overall allocation and distributional implications of deepening and widening of the EU and of policy at European, national and local levels. In the EU-15 member states regional structural change has taken place at a slow speed. Regional production structures are converging to the EU-15 average level, so that more specialised regions are becoming more diverse and less specialised regions are becoming more specialised. In terms of the regional performance, those regions that are highly specialised in resource dependent industries such as iron and steel industries, and agriculture, are not performing well, and one might consider these regions as losers from the integration  process. On the other hand, central regions tend to perform above average, while remote regions appear to be catching-up. Semi-central and semi-remote regions show a very mixed picture. An initial high specialisation at the regional level had a negative impact on employment growth. This negative relation can be observed, in particular, in regions specialized in resource dependent and industries with increasing returns to scale. The significantly negative industry-specific specialization-growth nexus did, however, generally not translate into a negative aggregate specialization-growth nexus. The analysis for the EU new member states (NMS) and Romania and Bulgaria shows that those regions that have a high proportion of employment in the secondary and tertiary sectors, and that are less specialised tend to have the highest per capita GDP levels. These regions tend to be internal regions, capital city regions or regions with a direct border to the EU-15, suggesting that agglomeration and location are important determinants for the performance of the regions of the NMS. This suggests a taxonomy of winning and loosing regions since the converse is true for the other regions. There has also been a distinct divergence among NMS regions. This finding is not dependent on the spatial scale of the countries. Again, this suggests that the integration process has not benefited all regions equally, and that there are loosing regions. An important part of our research was to investigate the spatial distribution of foreign direct investment (FDI) and the impact of this distribution on economic activity in the NMS. FDI is spread widely in geographical terms but some concentrations emerge at the country and region level. From a sectoral perspective, it is noticeable that high-tech foreign firms are less numerous than low tech ones, representing no more than 30% of the whole sample. The economic factors that are important in attracting FDI are good macro-economic fundamentals, good infrastructures, skilled labour force, large domestic markets and a sound legal system. National boundaries do not play a significant role on FDI location patterns. From a policy perspective this result is extremely important since it indicates that competition for attracting FDI occurs among regions rather than countries.