Regional integration and the other determinants of North-South ...

Mediterranean area. We pay particular attention to the impact of both regional and
international integration on the geographical distribution of industries.
Model specification
In section 3 (equ. 3.10), we have shown that the share of a representative industry i in
country c and in time t ( is related to profit ( . The empirical equation based on this
theoretical model (equ. 1.1) has to be specified now. It becomes:
ln ln ln ln (4.11)
The location of industry (i) in country (c) in period (t) depends on the supplier
access , the market access and the level of labour costs ( . Other
variables could have an impact on firm’s spatial distribution such as the quality of the
infrastructures or the global business environment. International trade costs and firms
characteristics also have to be considered in such analysis. The vector Z thus includes all
these control variables. The terms , represent industry-country fixed effects 49 .
Variables description
The concentration ratio weighted by the relative size of each country in the euro-
Mediterranean area is used to evaluate the geographical distribution of industries.
ln ln
(4.12)
denotes the output in the industry (i), country (c) at time (t) and is the total
production of i in our sample of countries. is the current GDP in c at time t and
represents the total courant GDP in the euro-mediterranean area in t. This variable makes it
possible to assess the geographic distribution of each industry in the integrated area, corrected
for the relative size of each country 50 . In addition, contrary to other geographic concentration
indexes (such as indexes presented in section 2), the concentration ratio makes it possible to
take into account the three observation levels of our dataset (countries, industries and years).
Le concentration ratio is higher when the industry i is strongly located in c. Thanks to
the size correction, larger countries do not always display the higher ratio.
The low level of labour costs is one of the main factors responsible for firms’ location
in developing countries. Production cost variable ( is given by:
ln ln (4.13)
Where is the sum of wages paid by firms belonging to industry i and located in
country c at time t and is the employment by industry, country and year 51 . The main
49 Time effects are not significant and have not been introduced in the model.
50 Other variables, such as the location quotient, have been tested but the ratio concentration ratio is the more
relevant in our analysis. It is closer to the theoretical model and much easier to interpret than the location
quotient.
51 Note that when 0 or =0, these two variables are given by the average sum of wages and the
average number of employees (respectively and .
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