REGIONAL SPECIALIZATION AND SHOCKS IN EUROPE - SOME EVIDENCE FROM REGIONAL DATA

The authors address the issue of the European Monetary Union (EMU), fo cusing on a comparison between EC countries and EC regions. They ident ify a number-of homogeneous economic regions and show that in the peri od 1978-1989 asymmetric shocks in Europe have been regional rather tha n national. This derives from the fact that regional specialization in Europe is strongly diversified. They argue that cross-border regional diversification can cushion the net effects of differentiated sectora l shocks, reducing national instability. In addition, the costs of EMU associated with the Loss of the exchange rate are likely to be smalle r than usually thought.