Structural Convergence of European Countries

Building on the three-sector-hypothesis, the New Theory of Trade, and the New Economic Geography, we investigate the development of economic structures of European countries over the last three decades using employment data. We test for structural convergence which we analyze on the aggregate level as well as specifically for manufacturing and service industries. For this we implement both time series and panel data methods. Our results indicate overall structural convergence between Western European countries over time. This is mainly due to strong intersectoral convergence patterns as countries shift from industrialized to service economies. In contrast, the results regarding intrasectoral convergence are mixed: Increasing spatial concentration in production is dominant in technology-intensive manufacturing industries which are characterized by economies of scale and path-dependency, whereas convergence is found in mature, less technology-intensive industries. In most service branches country-specific differences do not change to a significant extent with the exception of transport and storage services.