Economic Structure and Growth in the Brussels Metropolitan Area Specialisation or Diversity ?

The Brussels-Capital Region (BCR) is faced with a problem of massive unemployment affecting its less skilled residents in particular. Vandermotten et al. (2004) have advanced the idea of implementing sectoral policies to foster activities that employ less skilled workers. Without wishing to challenge the merits of such measures, especially the unquestionable one of grappling directly with Brussels’ social ills (and which could thereby bolster the city’s economic development by increasing the city’s attractiveness), in this article I shall strive to focus on other indirect consequences that such sectoral policies might have on long-term economic growth. Indeed, the local sectoral economic structure of a city or region does indeed affect economic growth, as many recent regional and urban economic studies have shown (see below). Now, an across-the-board (rather than targeted) redynamising of employment by growth also has its advantages, especially that of combating the phenomenon of “dequalification”, that is to say, situations in which workers apply for

positions at a lower level of qualification, thereby competing with and even taking unskilled workers' places (Devillé, 2005).
In this article I shall try to answer the following questions: How has the Brussels Metropolitan Area's economy developed over the past twenty years?How has production specialisation changed?Is there a cause-andeffect relationship between local economic structure and local growth in Belgium in general and the Brussels Metropolitan Area in particular?If there is, what is it?What regional sectoral policy recommendations follow logically therefrom?
Before answering these questions, let me run through some key figures regarding the Brussels Metropolitan Area (BMA) in the following section.For clarification, I define the BMA as the combination of BCR (161 km² forming its core), Walloon Brabant Province (WB -1,091 km 2 ) to the south, and Flemish Brabant Province (FB -2,106 km 2 ), which forms the rest of its peripheral ring: BMA = BCR + WB + FB Periphery = WB + FB This reconstitution of the former Brabant Province for our analytical needs is governed by the availability of economic statistics.

 I. A few key figures concerning the BMA's economy
Let us paint a quick portrait of the study area's economy.The BMA has a population of about 2.3 million and employs close to 30 percent of Belgium's salaried workers, i.e., 1 million wage and salary earners in 64,500 establishments 2 .Fifty-nine percent of the metropolitan area's salaried employment is concentrated in the core area (BCR) 3 , which is to say scarcely 5 percent of the BMA's territory.The density of jobs in the core area is thus about twelve times the mean for the total area.If we add the selfemployed, we get a working-age population in work in the BMA of some 1,16 million, of which three-quarters live in the BMA itself 4 .The rest consists of commuters ("daily migrants") who live in Belgium's other provinces.Half of the 350,000 people in work who commute into the BCR each day live in the region's outer ring (WB+FB).

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Didier Baudewyns, "Economic Structure and Growth in the Brussels Metropolitan Area.Specialisation or Diversity?"Brussels Studies  Issue 3  31 January 2007  www.brusselsstudies.beWith close to €84 billion of value added (VA) produced in 2004, the BMA accounts for one-third of the Belgian economy 5 .Eighty-five percent of the metropolitan VA, at current prices, is produced in the tertiary sector, which accounts for 38 percent of the services produced in Belgium.This far exceeds the BMA's weight in the national total VA and already indicates the BMA's economic over-specialisation in services 6 .The BMA's per capita GDP stands at some €34,000, or one and a half times the average for the former EU-15.However, income is unequally distributed over the residential area.So, the mean taxable income reported per tax declaration in the BCR was close to €23,800, or 23 percent below the mean reported taxable income in the periphery, in 2003.This was also 8 percent below the mean taxable income in Flanders, but 3 percent above the mean taxable income in Wallonia.Unemployment is also very high in the BCR, i.e., 15.7 percent of working-age residents (active residents in employment plus ILO unemployed) in 2004, whereas the unemployment rates in WB and FB for the same year were 7.7 and 5 percent, respectively 7 .The weighted mean unemployment rate for the entire BMA in 2004 was thus 10.6 percent, or about two percentage points above the national average 8 .

 II. Brussels metropolitan economic growth
The mean rate of economic growth (VA in volume) in the BMA has been 2.16 percent a year over the past fifteen years, or slightly better than the performance of Belgium as a whole (1.94 percent per annum since 1988see Table 1).What is more, if we analyse the situation for the three major sectors of activity (primary, secondary, and tertiary) (Table 1), we see the same positive differential of about 0.2 percentage point of growth for the secondary (industry, including power generation and construction) and tertiary (services) sectors alike.In fact, over the past ten years or so the tertiary sector has grown faster in the BMA than in the rest of Belgium (growth of 2.6 percent per annum between 1995 and 2004, compared with 2.1% per annum for the entire country over the same period -see Table 1).
5 Source: National Accounts Institute (INR-ICN, 2006).As a reminder, gross value added is the difference between production and intermediate consumption (raw materials, semi-finished products, and energy). 6Production trends in terms of volume (value added at constant prices) rather than value will be analysed in the next section.Inside the BMA, developments in the central area (BCR) have been markedly less favourable, for economic growth there has been a mere 1.5 percent per annum since 1988.Still, the BCR narrowed the gap considerably at the end of the period and even outstripped the national average growth rate, as the following figures show: mean annual growth rate of 2.2 percent in the BCR between 1995 and 2004, compared with 2.7 in the periphery and 2% for Belgium as a whole over the same period (see Table 1).
The tertiary sector's growth, given this sector's weight in the metropolitan economy, is obviously what determines to a great extent the total economic growth figures in and around Brussels (see, however, the section on industry's multiplier effects farther on).The growth in the production of services has been particularly strong in the periphery for some fifteen years, i.e., 3.3 percent per annum in WB+FB between 1988 and 2004, which was close to twice the rate of growth in services in the BCR (Table 1).In Brussels' periphery, the share of industry in the broad sense is greater and has fallen only slightly in volume over the past fifteen years or so (22  percent in 2003), although it is below the Belgian average (27 percent in 2003, Table 1).
The stronger growth in the production of goods and services on the edge of Brussels reflects above all the continuing "exurbanisation" of manufacturing (a more than twenty-year-old trend) and the urban sprawl of services rather than more efficient production in the firms located in Walloon and Flemish Brabant Provinces.
Let us start therefore by examining the relocation of industrial activities in the area.The number of manufacturing plants in the BCR fell 39 percent between 1985 and 2004, whilst it increased 1 percent in the peripheral area over the same time.This is a clear indication of this branch of economic activity's relative decentralisation9 .Moreover, the construction sector grew faster in Walloon and Flemish Brabant Provinces, primarily because of the massive urban flight from the city10 , for several thousand Brussels dwellers have been leaving downtown Brussels each year for the past thirty years for more spacious and cheaper (per square metre) housing on the city's outskirts11 .For the same reasons of urban sprawl of human activities, services have naturally diffused into the metropolitan periphery.Witness: Employment in the tertiary sector rose 21 percent in the BCR between 1985 and 2004 but 80 percent in the WB+FB over the same period.In other words, the entire Brussels metropolitan economy, being subject to centrifugal forces, has continued to become more decentralised for the past score of years.1.
Whilst the intra-metropolitan relocation of activities is very clear, might not the economic growth in the periphery be due, at least in part, to more efficient production than in downtown Brussels?This seems not to be the case.First of all, the enterprises ringing the city seem neither more nor less efficient today than their sisters or rivals in the BCR.As we can see in Table I, the value added per worker -an imperfect measure of labour productivity that is also called the apparent productivity of labour -is slightly higher in the BCR than on its periphery, in both industry (a relative difference of 10%) and the services (a relative difference of 12.5%).Next, we cannot explain the stronger growth in the periphery by gains in the production facilities' efficiency, either, at least not in the initial analysis.Indeed, we may express the growth in value added as follows: (1) ΔVA = Δ employment + Δ apparent productivity of labour where Δ is the operator of the year-on-year change.This bookkeeping identity offers a simply way to break down economic growth and express it as the sum of the growth in employment and apparent productivity of labour.It does not explain the sources of productivity gains (which can result from process or organisational innovation, for example).Still, applying this accounting truth to the BMA data yields some interesting information about the different trends in the central and peripheral zones (see Table 2).We see that the apparent productivity of labour in the BMA has risen at the rate of 0.9 percent per annum since 1985, or slightly faster than in Belgium as whole (0.8 percent per annum).Most important, the observed gap in economic growth (VA) between the periphery and BCR (annual differential of 1.5 percent = 3.1 percent -1.6 percent!) does indeed seem to be due to the decentralisation of jobs (differential of 2.2 percent -0.5 percent = 1.7 percent per annum in favour of the periphery), that is to say, of production facilities, rather than more efficient production on the outskirts, since the annual growth in the apparent productivity of labour in the two areas, at 0.9% at 1%, is almost identical.The apparent de-industrialisation of Belgium's economy, especially that of its cities, that is depicted in Table 1 must be put in perspective.First of all, industry continues to have major multiplier effects on the rest of the economy, especially as regards market services (Cornille and Robert, 2005), in an economic system in which industrial firms subcontract various tasks that they used to handle themselves (e.g., marketing, hiring, logistics, and so on).In a division of the Belgian economy into six major branches of activity (Cornille and Robert, 2005, p. 34), construction has the highest multiplier effect on production, namely, about 2. This means that for each euro produced in this sector, another euro is produced in the rest of the economy by indirect effects along the entire national production chain.

MEAN ANNUAL GROWTH
Second, the reduction in the relative weight of industry in our economic system does not at all mean that the production of tangible goods has fallen in recent years.One speaks of de-industrialisation in the strict sense only if the volume of manufacturing output falls.Now this has not been seen for the country as a whole since 1970 (see Bogaert et al., 2004, pp.3ff).The rise in the production volume concomitant with a drop in employment was made possible by productivity gains that, along with innovation and heightened specialisation in high value added products, have been one of the Belgian manufacturing sector's responses to the increased competition with which it has had to cope over the past twenty years, given that it is very open to international trade 13 .
Almost the same can be said for the BMA, the main difference being that the pace of its relative de-industrialisation rose considerably over the past two decades.So, the area's mean annual growth of manufacturing output has been 1 percent since 1985, compared with overall economic growth of 2.2 percent per annum 14 .In contrast, the de-industrialisation of the BCR has been absolute, with production falling 1 percent per annum since 1985, 13 The apparent productivity of labour in Belgium's manufacturing industry has risen 3 percent per annum since 1985 (own estimate based on INR-ICN, op.cit., and ONSS-RSZ, op.cit., Table 1).Despite all these efforts, Belgian industry has been losing global market shares structurally since 1985 (see Bogaert et.al, 2004, p. 9).reflecting the aforementioned exodus of industry from the city.This restructuring of the metropolitan economy has given rise to a relatively greater decline in employment in manufacturing compared with the rest of Belgium over the past roughly twenty years15 .As a result of this employment side adjustment of the economic system, the rise in the apparent productivity of labour in the BMA's manufacturing sector has kept pace with the national average (approx.3% per annum).
It should be pointed out that the BMA's manufacturing job losses have been largely offset, on the macro-economic level, by the creation of new jobs in the service sector, so that the total number of wage and salary earners in the BMA actually rose by some 215,000 units between 1985 and 2004 (a 26 percent rise comparable to the 24 percent rise for the Belgian economy as a whole) 16 .
The economy's relative de-industrialisation is due above all to its "tertiarisation" (Bogaert et al., 2004), which is by its very nature more marked in metropolitan areas, where market and non-market services develop more efficiently through the economies of agglomeration, e.g., economies of scale in education, transport, sports facilities, recreational and cultural facilities, health care, and so on.
 III.2 Specialisation in the BCR compared with Belgium .
The domination of Belgium's two major cities in the service sector is explained by Brussels' multiple statuses as domestic capital, European capital, and international diplomatic centre, in the case of Brussels, but also by their economic histories and the geography of transport

19
. This can probably be taken to be an illustration of the lock-in effect put forward by Krugman (1991), to wit, once regions such as Brussels and Antwerp become specialised in certain activities, the respective productivity gains that build up tend to lock them into the same specialisations for a very long period of time, even centuries.This gives them comparative advantages but can also have negative consequences on local growth, for example (see below).
 III.3.Relative specialisation in the centre and periphery Now let us look at the development of specialisation within the BMA.To do this, we can analyse private-sector employment trends by major activity sector in 52 communes (municipalities) in and around Brussels (the 19 "boroughs" of the BCR plus the 33 municipalities making up the first peripheral ring) between 1991 and 2002.Our database covers some 562,000 private-sector jobs in 2001, 362,000 of them in the core area (or 17 Source: Own computations using employment data provided by Agoria and ONSS-RSZ, 2006.Agoria Bruxelles differentiates clearly between "ICT services" and other production activities, contracting, and maintenance.These distinctions are not as clear in the statistical publications of Agoria Wallonie and Agoria Vlaanderen.This explains the establishment of fairly broad ranges. 18The number of jobs at the start of 2004 ranged from 47,000 in transport, warehousing, and communications to 85,000 in real estate, rentals, and corporate services and 106,000 in public administration.The other two major local sectors in Belgium are situated in Antwerp (some 54,000 jobs in trade and repairs and 50,000 in real estate, rentals, and corporate services). 19The BCR is "overspecialised", compared with the national mean, in public administration and various very high added value sectors, such as real estate and corporate services, financial activities, and transport and communications.These three branches of market services account for a third of salaried jobs in the BCR and boast an apparent productivity of labour in excess of 90,000 euros per employee.
62% of total employment in the BCR)

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. It is interesting to study spatial changes in the private sector's specialisations because the private sector accounted for 80 percent of the 200,000 jobs created (net balance) between 1985 and 2002 and the public sector (civil service and education) is less mobile geographically.
First of all, we see a relative decentralisation of private sector jobs in all sectors.Indeed, in the sectors in which employment in the BCR rose (real estate, financial activities, and the hospitality industry, i.e., hotels, restaurants, and cafés), it rose faster in the periphery, and in the sectors where it remained stable or fell in the BCR, in the periphery it either rose (retailing, other services) or declined less (industry and construction)
Overall, all sectors combined, private sector employment rose 2 percent in the BCR and 50 percent in the periphery between 1991 and 2001.Now let us compare the sectoral specialisations in the core versus the periphery in 2001 with their distribution in 1991.The relative sectoral specialisation index is defined as a given sector's share in total employment in the BCR divided by its share in total employment in the 52 communes of the BMA (Graph 1).The values greater than 1 show that the BCR has increased its "over-specialisation" in banking and insurance, individual and group services in the private sector (combined under the heading "other services"), and the hospitality industry (linked with the expansion of tourism in Brussels)

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. The BCR remains "over-specialised" in research and development, but this sector has relocated to the periphery: Its size in the 33 peripheral communes tripled in ten years (to total 362 private sector jobs in 2001), whereas the increase in the BCR was only 17 percent (to total 793 jobs in 2001) 23 . 20See Baudewyns et al. (2006) for a detailed description of the database.The 3,800 private sector jobs in agriculture and the production and distribution of electricity, gas, and water were not included due to these sectors' relative geographic immobility. 21For a detailed breakdown of the trends in figures, sector by sector, the reader is referred to Baudewyns et al. (2006). 22The fact that employment in the hospitality industry rose faster in the periphery than in the BCR does not contradict the observed bolstering of the BCR's relative over-specialisation in this area, for the relative weight of the hospitality industry in the 19 boroughs simply rose faster than its relative weight in the periphery.The same holds true for retailing. 23If we include government jobs, the BCR is slightly over-specialised in R&D compared with the national average (own computation), but the index has declined sharply over the past fifteen or so years because of more rapid rises in the numbers of R&D jobs in Wallonia (up 51 percent between 1995 and 2004!) and Flanders (up 45 percent between 1995 and 2004) compared with a mere 20 percent rise in the BCR over the same period.This corroborates the mitigated finding of the Regional Development Plan (2001)

 IV. Link between sectoral specialisations and local growth
Many recent econometric studies show that the structure of local production is not without influence on economic growth (Glaeser et al., 1992;  Henderson et al., 1995; Combes, 2000; De Lucio et al., 2002, Cingano and  Schivardi, 2004; Baudewyns, 2005; Greunz, 2005).Before looking at the main empirical findings, let us make a rapid review of the theories that link local economic structure, agglomeration, and local growth 24 .
On the consumers' side, their preference for a great variety of goods and services is one of the important reasons for their urban concentration.On the producers' side, the forces of agglomeration and urban economic growth can be placed in three major categories, to wit: (1) the interaction between transport costs and economies of scale in the production of goods and services 25 , (2) local communication externalities* -or the effects of "knowledge spillovers", and (3) market and strategic interactions.The models that are based on these factors bring local economic structure variables (specialisation, sectoral diversity, and competition) into play in one way or the other.The city's size itself can also play a role, since the effects Didier Baudewyns, "Economic Structure and Growth in the Brussels Metropolitan Area.Specialisation or Diversity?"Brussels Studies  Issue 3  31 January 2007  www.brusselsstudies.be of knowledge spillovers, for example, will obviously not be seen unless the employment area has already reached a certain critical size.
When it comes to communication externalities, the proponents of models along the lines of the Marshall-Arrow-Romer (MAR) model believe that local sectoral specialisation encourages innovation through the sharing of knowledge and exchanging of ideas between people working in the same industry.In addition, given the problem of businesses' incomplete appropriation of research and development efforts (imitation instead of mastery), in the presence of local knowledge spillover effects, the MAR theory postulates that local monopolies would be favourable for innovation.The American economist M.E.Porter (1990), for his part, proposes a local clusters theory of innovation that also promotes local sectoral specialisation but, unlike the MAR models, he advances that local competition between businesses, rather than monopolies, is one of the driving forces of innovation 26 .Jacobs (1969) is also in favour of a competitive environment and believes that local sectoral diversity promotes innovation through exchanges of ideas between people from different areas of activity.In this connection, the literature on innovation systems has stressed the danger of regional technological lock-in and the advantages of diversity in the broad sense, that is to say, of production structures as well as of institutions 27 .
Whether the communication externalities are inter-or intrasectoral, ideas do indeed seem basically to be exchanged locally, as several studies have shown (see Wallsten, 2001, for example).
In spatial strategic interaction models, price competition fosters spatial isolation, whereas the race for market share and the local markets' sizes would tend more to push businesses to concentrate because of consumers' preference for a large variety of goods and services.Moreover, large cities that are diversified from a production standpoint offer the right conditions for a better match of supply and demand on the labour and intermediate goods and services market.

Empirical findings
When it comes to the tertiary sector, Combes (2000), in his article on the growth of employment in the 341 French activity zones, and Baudewyns (2005), who studied the growth of VA in the 43 Belgian districts, get roughly the same results in their overall regressions for services: Local sectoral diversity does indeed have a significant positive effect on the tertiary sector's economic growth, whereas specialisation and, to a lesser extent, the degree of local competition are detrimental to it and urban density appears to have no overall effect on the growth of service activities.It should be pointed out that in Combes (2000) and Baudewyns (2005), who worked by constructing indicators, sectoral specialisation is not necessarily linked negatively to sectoral diversity, for the concept used is that of the diversity with which all sectors must cope* (see the indicator's definition in the annex) 28 .The indicator relative local sectoral specialisation*, for its part, is a given sector's share in total local employment over the sector's weight in the national scheme of things (see the exact formula in the annex).
When it comes to the manufacturing industry, the findings are markedly more contrasting in the European literature.Most of the articles find no significant effect of either local diversity or competition on local growth of VA (Baudewyns, 2005) or industrial productivity (De Lucio et al., 2002;  Cingano and Schivardi, 2004).Depending on the methodology and country studied, sectoral specialisation is either unfavourable (Combes, 2000; De  Lucio et al., 2002) or favourable (Cingano et Schivardi, 2004) for local growth in the manufacturing industry.The study by Greunz (2005) differs from the studies mentioned above because its aim is not to explain the growth of VA or productivity, but rather the activity of local innovationdetermined by patent applications filed with the European Patent Office -, which is one of the major determinants of long-term economic growth.In his models for sixteen manufacturing sectors estimated from the data on 153 NUTS II regions for the former 15-member European Union, Greunz finds that the diversity of a production system does indeed have a large positive impact on innovation in urban areas, in line with Jacobs's theory (intersectoral fertilisation of ideas in cities).Local specialisation (MAR externalities) also has a positive effect, but a markedly smaller one.

 V. Brussels regional policy stakes
Let us now come back to production specialisation and economic growth in the Brussels Region.The economic structure indicators that I calculated in another article (Baudewyns, 2005) show that the BCR had the following three characteristics at the start of the period (1991): ① over-specialisation in services.
Didier Baudewyns, "Economic Structure and Growth in the Brussels Metropolitan Area.Specialisation or Diversity?"Brussels Studies  Issue 3  31 January 2007  www.brusselsstudies.be Table 3.

Decomposition of local growth differential with the Belgian averageservices, 1993-1997 (annual percentage points).
② relatively low sectoral diversity compared with the national average.
③ strong competition between businesses29 .The studies reviewed in the preceding section suggest that this structure is unfavourable for economic growth in the BCR, where, let's remember, services account for close to 90% of the economy.The estimates that I made in the aforementioned article suggest, moreover, that the local economic structure at the start of the period explains a significant part of the BCR's lag in economic growth compared with the national average between 1993 and 1997.This is what is shown in Table 3, where the tertiary sector's annual local growth differential has been broken down into a part that is explained by the local economic structure in 1991 ("Total Local Structure" column) and a part that is not.and 1997 may be explained by variables other than sectoral structure variables.Nevertheless, the characteristics of the BCR's economic fabric did indeed contribute to the BCR's poorer performance.This is valid for the BMA as a whole and contrasts singularly with Flanders, where close to 40 percent of the surplus growth 31 of VA observed in the tertiary sector (0.43 percent above the national average) would indeed appear to be explained by the region's better economic fabric at the start of the period (see Table 3).

Districts
Now let us study recent developments in the sectoral diversity in Brussels compared with the other regions of Belgium, as this variable appears to have the greatest positive impact on service activities, according to the growth equation in Table 3 (see also the probable virtuous effects on industrial innovation mentioned by Greunz, 2005).I measured the total local sectoral diversity* for each of the Belgian districts by taking the inverse of a Herfindahl concentration index (Combes, 2000; Baudewyns, 2005)  computed over all thirty-five economic activity sectors in the ONSS-RSZ's latest classification.Graph 2 shows the changes in the indicator calculated in this way for the Flemish and Walloon districts (regional means), the BCR, the periphery (WB+FB), and Belgium as a whole since 1996.This graph shows four major trends.First, over the years the Belgian districts have become less and less diversified when it comes to their production systems.This is not good news, according to our econometric 31 0.16% / 0.43% = 37%.

Source:
Own computations (see text) Didier Baudewyns, "Economic Structure and Growth in the Brussels Metropolitan Area.Specialisation or Diversity?"Brussels Studies  Issue 3  31 January 2007  www.brusselsstudies.beanalyses of local growth, especially for the districts that are specialised in the tertiary sector (see Section 4).Statistical analysis shows that the strong surge in employment in five service sectors32 , which today account for half of employment in Belgium, and the concomitant plummeting of employment in certain manufacturing sectors 33 are what explains this phenomenon.Second, sectoral variety is markedly higher in the Flemish districts than in Brussels and Wallonia.Third, the periphery's sectoral diversity indicator, which was between those of the BCR and Flanders at the outset, in 1996, rapidly fell to the level seen for the core area and even dipped below the latter in 2003.This is due to the strong increases in the relative shares of a few corporate and household service sectors (real estate, corporate services, healthcare, social assistance, trade, and repairs) in total employment in the periphery in connection with the continuing urban sprawl of human activities.This means that the periphery no longer has a substantial comparative advantage over the Brussels Region per se when it comes to sectoral diversity.
Fourth and last, the mean sectoral diversity has fallen much more rapidly in Flanders since 2001 than in Wallonia and Brussels.This can be explained by the faster pace of job losses in a few manufacturing sectors that are (or were) relatively important in Flanders34 , while at the same time employment in the health sector, real estate and corporate services, trade and repairs, and education rose faster in Flanders than in the rest of Belgium.This increased the imbalance in the distribution of employment amongst the various activity sectors in Flanders.In a nutshell, the difference in sectoral diversity between Flanders and the rest of Belgium has gradually narrowed in recent years.This could help to reduce the growth differential between Flanders and the BCR in the medium term.Table 3 effectively suggests that if the BCR's sectoral diversity were very close to that seen in Flanders, its annual growth shortfall in the tertiary sector compared with the national average could be roughly halved, which is no mean feat.

 VI. Conclusions
One of the causes of the massive unemployment in the BCR was the absence, until 1998, of strong local economic growth.This lack of growth was due to a great extent, even completely, to urban sprawl and the concomitant spreading-out of human activity.This relative and gradual decentralisation of the region's economy increased not only the mean geographic distance, but also the mean cultural and linguistic distances35 between Brussels-dwelling jobseekers and potential employers.Recently, Vandermotten et al. (2004) have proposed to deal with the huge reserved of low-skilled, out-of-work labour in the Brussels Region by supporting the development of sectors that employ unskilled or low-skilled staff.
On another front, Belgian and European econometric analyses have shown that sectoral diversity, in contrast to specialisation, does indeed encourage urban economic growth.This suggests the existence of intersectoral knowledge spillover effects, but also the presence of market forces and strategic interactions that are conductive to the agglomeration of service activities.It thereby follows that one must be careful in targeting specific sectors for regional aid.To put it simply, any policy aimed at encouraging the creation of low-skill jobs in the BCR or any other economic activity aid policy, regardless of the objective, must not be detrimental to the region's sectoral diversity, which, on the contrary, must be stimulated, according to our local growth analyses.So, we have seen that giving a positive shock to Brussels employment, for example in the wake of sectoral policies such as those proposed by Vandermotten et al. (2004), in tourism, building, and some other social action and community and individual service sectors requiring less skilled workers, would improve the local sectoral diversity indicator.In contrast, boosting employment in Brussels' retail and wholesale trade exogenously would degrade the regional production system's diversity.That would be potentially harmful for long-term economic growth, if all other variables remain constant.

* Communication externalities
By externality economists mean an increase in or loss of well-being that is not the subject of a transaction (non-market effect) and results directly from the interaction of economic players.For example, air pollution from a chemicals plant is a negative externality for the neighbourhood.Communication externalities, in contrast, are positive externalities that bolster the accumulation of knowledge and result from communication between various economic players.
* Sectoral diversity with which a sector must cope In Combes (2000) and Baudewyns ( 2005), the diversity indicator is defined for any sector i in an employment area (or district) j to be the inverse of a Herfindahl concentration index computed over the shares that each sector has in area j's total employment, excluding the sector i under consideration: ) where emp i,j and emp j are employment in sector i and total employment in zone j, respectively, and S is the total number of activity sectors in the economy.This indicator's value is normalised by the same indicator computed at the national level, for the local "growth surplus" (i.e. the difference between the local growth rate and the national growth rate) of local growth is what is explained.In Baudewyns (2005), the index used is the mean for the sectors making up the secondary and tertiary sectors, respectively, because the data are aggregated for these two macroeconomic sectors.

* Relative local sectoral specialisation
For any sector (or branch) of activity i, the relative local specialisation indicator is: where VA i,j and VA j are the value added of sector i and the total value added in employment area j, respectively, and are the corresponding amounts on the national level.In Combes (2000), the indicator is computed from sectoral employment data.
Didier Baudewyns, "Economic Structure and Growth in the Brussels Metropolitan Area.Specialisation or Diversity?"Brussels Studies  Issue 3  31 January 2007  www.brusselsstudies.be* Total local sectoral diversity Formally, the indicator for each district j was constructed from data on the ONSS-RSZ's 35 activity sectors (salaried employment by district, 1996-2003): where emp i,j and emp j are defined above.

7
Source of unemployment rates: Eurostat, 2006.The unemployed as defined by the International Labor Office (ILO) includes all individuals 15 years of age and older who were jobless, available for work, and seeking a job during the reference period (source: INS/NIS, 2006, http://statbel.fgov.be/figures/d31_fr.asp). 8Source: Own computation from Eurostat figures, 2006.

, 1985-2004
14Source:INR-ICN (2000), op.cit., Table1,INR-ICN (2006)and own computations.To be able to compare the SEC 79 figures with those of the SEC 95, I redefined the manufacturing industry as follows: all of the manufacturing sectors aside from coke plants, refineries, and nuclear industries (NACE 23 division) but including the mining industries (ores and minerals).

Table 1
RSV's 35 branch classification, show that the BCR and Antwerp clearly dominate in Belgium's tertiary sector: So, seven of the nine largest local sectors, i.e., on the statistical district level, in Belgium belong to the tertiary sector and are located in the BCR 18 suggests that the BMA has become more specialised in high value added branches in both the secondary and tertiary sectors.This is clearly what happened in the BCR, where the manufacturing industry has shrunk (in terms of both number of jobs and number of establishments) roughly 40% since 1985.Only about 1,700 manufacturing production units, generally with a high technological content or relatively high value added per worker, remained in the BCR in 2004 and employment in these activities is particularly high in printing and publishing, transport equipment, agrifood, the chemicals and plastics industry, electrical machinery, and the garment industry.Using the figures published by Agoria (technological industry federation), I calculated that high tech, excluding information and communication technology (ICT) services, accounts for 42 percent of manufacturing jobs in the BRC, compared with an estimated range of 34 to Didier Baudewyns, "Economic Structure and Growth in the Brussels Metropolitan Area.Specialisation or Diversity?"Brussels Studies  Issue 3  31 January 2007  www.brusselsstudies.be regarding the unfavourable trend in this sector compared with other European cities. See Finding 4 of the 2001 RDP published by Brussels' regional government (in French): http://www.prd.irisnet.be/Fr/constat/constat04.htm.
Didier Baudewyns, "Economic Structure and Growth in the Brussels Metropolitan Area.Specialisation or Diversity?"Brussels Studies  Issue 3  31 January 2007  www.brusselsstudies.be