Multi-dynamic interregional input-output shift-share: model, theory and application

Shift-share decomposition has been extensively used to identify the key drivers of sectoral and regional economic growth. Traditionally, shift-share does not pay attention to any form of interregional externalities and the rare exceptions define them based on geographical proximity only. However, given the increasing role of global value chains in economic growth, this paper introduces the Multi-dynamic interregional input-output shift-share decomposition in order to capture the dynamic intersectoral relationships between a spatial unit and any other unit it trades with. The methodology is illustrated on 35 productive sectors of 15 European Union countries over 1995–2006. The results show that the most important driver of output growth in these countries are their sectoral linkages with other European countries, followed by the domestic sectoral linkages.