The dynamics of European industrial structure

Has the European integration process lead to increased specialization and what drives changes in countries' specialization? To address these questions we apply a model that incorporates endowments, technology and increasing returns to scale. Analysis reveals that countries with high capital accumulation have become increasingly specialized in capital-intensive industries; this holds for both human and physical capital. No general tendency towards increased specialization is found with the exception of capital-intensive industries. Analysis indicates scale economies in R&D at the firm level and that R&D at the firm level drives productivity and competitiveness.