4.2.3. Economic specialisation

In this section we will be analysing the economic specialisation of the Basque Country based on foreign trade data. The data have been divided into 19 branches of activity, which have in turn been grouped based on their technological level, economic use of the goods, level of growth, and technical and economic characteristics.

The risks deriving from the high degree of concentration of Basque exports in four branches are somewhat mitigated by the region’s indices of comparative advantage in these four sectors

As shown in Table 21, Basque exports have a significant degree of concentration in four industries: motor vehicles (24%), metallurgy and basic metals (23%), machinery and equipment (14%), and refined petroleum products (8%). The specialisation indexes for these four branches are also high. The resulting risks are significant, given the considerable link between the first three, which largely form part of the same value chains, and the fact that the fourth is highly subject to energy price volatility and foreign oil supply. Be that as it may, it should be noted that between 2008 and 2018, the degree of export concentration dropped considerably, primarily due to the declining share of metallurgy and metal products exports. Additionally, as we will see below when analysing relative balance of trade, the severity of this concentration is less because in these four sectors with the largest share of exports, the Basque Country has strongly positive comparative advantage rates.

The Basque Country primarily exports medium-tech products and those with medium demand growth, intermediate goods and consumer durables, from economies of scale-intensive branches. In contrast, it has hardly any high-tech and high demand growth exports, or from the science and technology-intensive branches. Of the three major manufacturing branches which are classified as high-tech, the Basque Country’s greatest weaknesses are in pharmaceuticals, followed by electronics and IT, with aeronautics having relatively fewer weaknesses. In addition, the Basque Country’s percentage of consumer goods exports is very low. This makes the Basque economy highly sensitive to the economic cycle, which may explain why Basque exports are more affected in times of crisis, and why, in contrast, in 2018, a time of relative growth in the economy of advanced countries, its exports are also showing stronger growth.

As regards to specialisation, in addition to the four branches discussed, there are several industries that are also notable for having a positive specialisation: nonmetallic industry (from exports of glass, cement, refractory ceramics, abrasive products and non-metallic mineral products), wood, paper and printing (primarily due to pulp, paper and paperboard), and rubber and plastics (primarily due to rubber). And although there is no specialisation at the branch level, if we drop down to the sub-branch level, railway equipment. It should also be noted that the industries in which the Basque Country is underspecialised include some closely linked to the strategic priorities and areas of opportunity included in the Basque RIS3: pharmaceuticals (biosciences/health strategy); computer and electronic products, and electrical materials and equipment (advanced manufacturing/Industry 4.0 strategy); and food (area of opportunity of the same name).

Table 21. Analysis of export specialisation
Table 21. Analysis of export specialisation
Source: Eurostat, United Nations, Comtrade Database and Directorate-General for Taxation. Compiled by authors.

The groups of activity in which the Basque Country exports the most and is the most specialised make it more sensitive to the economic cycle

The groups of activity in which the Basque Country specialises strongly coincide with those that had the highest exports. Also noteworthy is the significant underspecialisation in high-tech and high demand growth, science and technology-intensive branches (that is, those which open up more windows of opportunity and are less affected by competition from emerging countries), as well as consumer goods producers. This, as indicated above, makes the Basque economy more sensitive to the economic cycle. It is for this reason that we are unable to categorise the Basque Country’s industry specialisation profile as entirely satisfactory.

Analysis of relative balance of trad, a more advanced indicator of comparative advantage than specialisation indices, confirms that the four industries in the Basque Country which have the highest exports and which have a specialisation index over 100% also have large positive relative balances of trade. Therefore, from the perspective of competitiveness, they have considerable strengths. As regards to the specialisation indexes, analysis of the relative balance of trade indicates that some branches in which the Basque Country does not have a significant specialisation (or was even underspecialised) have positive trade balances. This is the case of electrical materials and equipment (highly important for Industry 4.0) and other transport equipment. Lastly, confirming what the specialisation analysis might suggest, in wood, paper and printing, the Basque Country continues to report a considerable positive relative balance of trade.

And from the perspective of groups of activity, we see the same tendency: in addition to confirming the strengths demonstrated by the specialisation index analysis, the capital goods, differentiation-intensive and science and technology-intensive branches also have a positive balance of trade, all of them being attractive from a competitive point of view. We also find advantages in other, more vulnerable, types of activities: resource- and labour-intensive industries (which include manufacture of metal products). The underspecialisation (with a negative relative balance of trade) in the high-tech group is also confirmed.

The greater transformation of the structure of Basque exports between 2013 and 2018 can be explained by both proactive and reactive behaviours

As analysts indicate, development does not only consist of how much the product grows, but also how the composition of what is produced is transformed. In the previous section, we analysed how much Basque exports have grown, in comparison with those of other territories. Here we offer a brief analysis of how the export structure has changed, based on the structural change index for exports (see Table 22). During the 2008–2018 period, there were two clear phases of Basque exports. Between 2008 and 2013, the structure of Basque exports changed less, and what change did occur was reactive in nature (sector adjustment in response to declining demand). Between 2013 and 2018, in contrast, the structure of Basque exports changed more than that of the other economies. Behind this, it is possible to observe both reactive (recovery of markets lost during the previous phase) and proactive (development of new activities and markets) behaviours.

Table 22. Index of structural change in exports
Table 22. Index of structural change in exports
Source:  Eurostat, United Nations, Comtrade Database and Directorate-General for Taxation. Compiled by authors.

In general, if we look at the transformation over the entire period in the Basque Country (see Table 21) we see growth in consumer durables and in medium-to-hightech and medium-to-high demand growth industries, as well as global innovation for local markets. While on the whole this is positive, the significant underspecialisation in high-tech and high demand growth, and science and technology-intensive branches remains uncorrected. There has also been a downturn in differentiation-intensive industries. Metallurgy and metal products is the branch that lost the most exports, whereas motor vehicles made the most progress (despite a decline during the 2008–2013 period).

BOX 2 Index of structural change in exports

An alternative way to analyse export specialisation is by grouping exports into clusters, following the methodology which groups economic activities based on patterns of co-location of employment, input–output links and links between occupations (see Delgado et al., 2016). This gives us 51 clusters that group together different activities, which can also be used to classify exports by means of a conversion table.

Graph 18 shows trends in Basque export clusters for the years 2017 and 2018. Given that the 2018 figures for global exports are not yet complete, Basque exports are given as a share of exports originating in Europe as a whole.

Graph 18. Map of export clusters
Graph 18. Map of export clusters
Source: Agencia Tributaria (Spanish Tax Agency) and United Nations, Comtrade. Compiled by authors.

The ‘business services’ cluster is outside the graph, as it does not represent any type and because its value is beyond the x-axis (change in share).

These clusters can be grouped based on the typology developed by Orkestra, which classifies clusters according to their importance (share of Basque exports, represented by the size of the circle), their competitive position (share of exports originating in Europe, position on the vertical axis) and dynamism (increase in the share of exports, position on the horizontal axis). The combination of these three characteristics yields the typology laid out in Table 23. Because of their importance in Basque exports, these clusters and the underlying areas of economic activity warrant particular attention in order to implement suitable policies for their development.

Table 23. Export cluster typology for the Basque Country
Table 23. Export cluster typology for the Basque Country
Source: Agencia Tributaria (Spanish Tax Agency) and United Nations, Comtrade. Compiled by authors.
  1. The relative balance of trade index, also known as the Balassa index, is calculated as the difference between the value of exports and imports in a given branch and is relativised by the sum of the exports and imports in that same branch.

  2. Delgado, M., Porter, M.E., y Stern, S. (2016). «Defining clusters of related industries», Journal of Economic Geography, v.16, pp. 1-38