A New Shift-Share Method

The shift-share analysis is a widely used decomposition technique in regional studies to quantify an industry-mix effect and a competitive effect on the growth of regional employment (or any other relevant variable) relative to the national average. This technique has always been subject to criticism for its lack of theoretical basis. In this paper we provide a critical assessment of the methods suggested by Dunn (1960) and by Esteban-Marquillas (1972) and propose a new shift-share method, which separates out the two effects unambiguously. An application to manufacturing employment in the Belgian provinces between 1995 and 2007 is provided as an illustration.