Journal Article
Closing the Gap between Absolute and Relative Measures of Localization, Concentration or Specialization
Empirical studies on the evolution of concentration, specialization or localization of economic activity have provided ambiguous results that strongly depend on the researcher’s choice of the reference. This paper develops a decomposition method for Theil indices of localization that clarifies where this ambiguity originates from. The method allows expressing the difference between absolute and relative Theil indices of localization in terms of Theil indices that are subject to straightforward interpretation. Illustrations show that the divergence of absolute from relative localization in the EU-15 and in UK manufacturing is largely a statistical artifact inherited from the peculiarities of the industry classifications.
