SPATIAL DISTRIBUTION OF INDUSTRIAL PRODUCTION: A COMPARISON OF EAST ASIA AND EUROPE Kazunobu HAYAKAWA, 1 Zheng JI, 2 and Ayako OBASHI 3 1 Bangkok Research Center, Japan External Trade Organization, Bangkok, Thailand; 2 Graduate School of Economics, Keio University, Tokyo, Japan; and 3 Faculty of Economics, Keio University, Tokyo, Japan First version received September 2009; final version accepted June 2011 Inspired by the observed contrasting patterns of geographical distribution of the electric machinery industry in East Asia and Europe, this paper conducts an empirical clarifi- cation of the difference in spatial relationships in industry sizes among countries within a region by use of spatial econometric techniques. The results indicate that, while the size of the electric machinery industry in a country is positively correlated with that of neighboring countries in East Asia, there is no significant spatial correlation in Europe. Such a difference in spatial interdependence has important implications for economic development in those regions. Keywords: Agglomeration; Fragmentation; East Asia; Europe JEL classification: N64, N65, R11, R12 I. INTRODUCTION I t is well known that there is a clear contrast between the East Asian and European regions in terms of intra-regional disparities in location advan- tages, such as factor prices, among countries. Such a contrast can be utilized to clarify the different ways in which changes in some economic variables affect other economic variables in connection with differences in location advantages within a region. In other words, the East Asian and European regions work as natural models with large and small intra-regional disparities in location advan- tages, respectively. A comparative analysis of the two regions highlights the evidence that the consequences of changes in economic variables in a region with smaller disparities (i.e., Europe) are not necessarily the same as those in a region with larger disparities (i.e., East Asia), which provides clues to avoiding unexpected policy effects. We are grateful to two anonymous referees of this journal, Toshitaka Gokan, and Tomohiro Machikita for their invaluable comments. The Developing Economies 49, no. 4 (December 2011): 363–81 © 2011 The Authors The Developing Economies © 2011 Institute of Developing Economies doi: 10.1111/j.1746-1049.2011.00143.x