EU industrial structure - EU Bookshop - Europa

EU industrial structure 2011 — Trends and Performance
40
box II.1: Indicator of a country’s sectoral specialisation
The indicator of a country’s sectoral specialisation compares the share of a given sector in one country with the
share of the same sector in the EU as a whole. A value of 1 for a sector indicates the same share for that sector in the
country and in the EU. Values above (below) 1 indicate specialisation (lack of specialisation) of the country in that
sector and, the higher the value of the indicator, the higher the country’s specialisation compared to the EU average.
The index is calculated, for country ‘i’ and industry ‘j’, as follows:
where VA is value added and EU refers to EU‑27.
When interpreting the coefficient there are at least three caveats.
1) Large countries mostly determine the sectoral profile of the EU, in which they are included. It is, therefore, less likely to
find significant differences between large countries and the EU as a whole. For the same reason it is more likely to find
a substantially different profile in small countries from that of the EU. This arithmetic property of the indicator affects the
value of the index but not the specialisation profile of the country. However, the 2009 edition of EU industrial structure
(See Figure II.7 p. 61) showed that the results are not substantially affected by the method of calculation since changing
the area of reference by excluding the country under analysis does not substantially alter those indicators. Nevertheless,
other factors, as well as the way the indicator is calculated, explain the fact that small countries tend to show a sectoral
profile different from the average. Large countries are in a naturally favourable position to initiate a larger number of
activities successfully. Conversely, the obvious constraints that prevent small countries from developing a large range
of economic activities lead these countries to specialise on the basis of, among other things, their own comparative
advantages, their degree of development, the availability of specific resources, historical reasons, geographical and
location advantages, and technical characteristics of the sectors (e.g. economies of scale).
2) The level of sectoral aggregation also affects the results, as aggregation may mask the level of specialisation or lack
of specialisation of a country in a given sector. This applies to the results presented in Section II.2, as the taxonomies
for which the indicator is calculated are the result of aggregating sectors as defined in the NACE Rev. 1 nomenclature.
3) Specialisation and size of the sector are not necessarily related. The fact that a country is specialised in a sector
does not necessarily imply that the share of this sector in the economy of the country is large.
degree of specialisation in a country
While the indicator of sectoral specialisation provides a value for each sector in a given country, the degree of
specialisation in a country is measured as the Euclidean distance between the country’s vector of specialisation and
the vector corresponding to the non‑specialisation hypothetical case of non‑specialisation in which the coefficient
of specialisation would take the value 1 for each sector. For country ‘i’ and ‘n’ sectors the coefficient that measures
the degree of specialisation is calculated as follows.