The Competitiveness of Regions. A Comparison between Belgian and German Regions

We analyze the regional competitiveness of NUTS1 German and Belgian regions using firm level data. By doing so, we want to stress the importance of heterogeneity between regions within countries, as well as of firm heterogeneity, in the context of competitiveness analysis. We thus take a step away from the standard approach to the topic which makes use of composite indicators, and define competitiveness as labor cost per unit of value added at the firm level. But in doing so, we control for firm size and the sector the firm operates in. We further break down the analysis into productivity and labor cost dynamics. Using Flanders’ performance as benchmark, we find that the region ranks high in terms of labor productivity, but loses its competitive edge to East German regions especially because of its relatively high labor costs. Belgian regions are in general outperformed by German ones, at least as far as manufacturing production is concerned.