Production Networks in the Enlarged European Union

This paper examines the changes that have taken place in European production networks in the automotive industry since the mid-1990s, when the European Union [EU] integration process intensified. Descriptive analysis suggests that advances in European integration have led to a spatial extension of the networks to the east rather than to a replacement of traditional locations. Using an extended gravity panel data model, econometric results corroborate that EU membership and comparative advantages are key determining factors to being integrated in cross-border production networks. Moreover, other variables such as good quality infrastructure, a minimum threshold of development, a headquarters effect, as well as other unobserved country characteristics also seem to matter. These results open the door to the implementation of regional and industrial policies in order to strengthen these European production networks.