Adjustment Dynamics of Countries ’ Specialization in the European Union

We investigate the adjustment dynamics of countries ’ specialization patterns in terms of labor market participation in manufacturing industries for the European Union. Using co-integration and error correction modeling techniques, we find that imbalances in European countries ’ specialization are being set off at a rate of about 63 percent within the next period. Adjustment rates for Denmark, France, Germany, and Spain are lower than for the entire EU. These patterns deliver valuable information about labor market rigidities and the suitability of a common monetary union in the European Union. Keywords