Tangible and Intangible Capital and the Pattern of Specialisation in the EU

This paper investigates the determinants of specialisation in 7 European countries and 4 major industrial sectors in the last 20 years. Next to the impact of traditional factors such as productivity and the endowment of labour and capital, we look at the importance of accounting for capital heterogeneity, by distinguishing between ICT and non-ICT assets, and for intangible capital such as skills and R&D. Our results show that intangible capital and innovation play an important part in increasing the value added shares of the Manufacturing sector while increasing investments in ICT have driven resources away from Manufacturing and towards the Service industry.