Closing the gap between absolute and relative measures of localization, concentration or specialization

This paper solves one of the puzzles in the analysis of regional and industrial distributions of economic activity, the discrepancy between absolute and relative measures. It shows that the difference between an absolute and a relative Theil index of localization can be expressed in terms of absolute and relative concentration and specialization measures. This helps understand and explore why absolute and relative measures frequently evolve in opposite directions. The paper shows for the EU-15 and for UK manufacturing that this divergence originates mainly from the industrial dimension and is largely a statistical artifact inherited from the characteristics of industry classifications.