Delocation and European integration: is structural spending justified?

How is European integration changing the location of industry? And what part are national and EU aids to industry playing in this process? We show that states and regions are becoming more specialized within the EU, but this process is very slow. While there is no evidence of polarization occurring at the national level, some regions are losing out. National state aids to industry appear to have little effect for either good or ill, since their effectiveness at attracting economic activity and employment is limited. European Structural Funds expenditure, by contrast, does have an effect on the location of industry, notably by attracting industries that are intensive in research and development. However, this effect has mostly been acting counter to states' comparative advantage - R&D-intensive industries have been encouraged by these aids to locate in countries and regions that have low endowments of skilled labour. Only in Ireland, where Structural Funds reinforced rather than offset comparative advantage, have poor regions been enabled systematically to catch up with the EU average. Copyright (c) CEPR, CES, MSH, 2002.