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No Convergence in Europe Since 1992
The introduction of the
Single Market in 1992 has not had the results one might have expected
from economic theory. In fact, outcomes have been random. This is the
conclusion reached by two leading economists who have studied data from
65,000 firms with more than 100 employees in 113 industries across
fourteen countries. Paul Geroski of the London Business School and Dr
Klaus Peter Gugler of the University of Vienna have published the
results of their research in a Discussion Paper just issued by the
Centre for Economic Policy Research.
They note that, according
to the influential ‘convergence’ model, industrial structures in the
different national markets should ‘converge to the same size
distribution of firms. The logic here is that the same economic forces
ought to apply to firms operating anywhere in Europe, and, therefore,
that what we observe in particular national markets ought to mirror what
we observe at the European level’.
On the other hand, the
‘specialization’ model would mean that the forces of competition
unleashed by the 1992 programme would create an industrial structure in
Europe in which a few very large firms located in some of the larger
economies would dominate markets across Europe, and that these firms
would face competition in different regions or national markets from
specialized, niche players who cannot compete with them head to head. If
this were the case, then some countries would be populated by niche or
specialized players while others would host broader, mass market
players, and the industrial structure we see in different countries
would differ.
The authors find there is
no evidence of convergence towards a common structure. They say, ‘[T]he
fact that individual firms do not appear to be converging towards a
common size distribution within industries across countries presumably
means that specialization is occurring; that market structures in
particular industries in different European countries are retaining
distinct – and possibly complementary – identities.’
If this is so the only meaning of the
phrase "European industrial structure" might be that it
is a patchwork of national (or even sub-national) industrial structures
that retain their separate identity even as they gradually change over
time. The report concludes: ‘The sources of corporate growth are, it
appears, both idiosyncratic and firm specific… ’There is little
evidence of convergence because ‘we have found it very difficult to
detect major departures from the theory that corporate growth rates are
pretty much random.’ Firms grow for their own reasons rather than
according to wider dynamics. Special factors ‘such as the size, age
and the internal organization of the firm seem to play a role in the
growth process, but none of them display the kinds of idiosyncratic,
firm-specific variation that corporate growth rates do.’ END
Notes
for Editors:
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is a network of over 550 researchers based throughout Europe, who
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administer them and disseminate their results. The Centre’s research
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economic transformation of Central and Eastern Europe to regionalism in
the world economy. For further information about CEPR, please contact Rita
Gilbert, Tel: (44 20) 7878 2917 or contact James
Morgan, Tel: (44 20) 8225 7262.
The
Authors:
Paul
Geroski is Professor of Economics at the London Business School and
is also a Research Fellow in CEPR’s International Organization
programme. Klaus Peter Gugler is at Universität Wien.
Corporate Growth Convergence in Europe
Paul Geroski and Klaus Peter Gugler
CEPR
Discussion Paper
No 2838
£5.00
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