Competing within global value chains

The increasing spread of global value chains (GVCs) worldwide has been one of the most prominent features of the global economy for the last three decades. Production of goods and services is sliced into stages so that intermediate inputs are sourced from most efficient producers often located across the globe. Although this phenomenon is not new, the intensity with which it shapes the current economic reality has increased recently. The magnitude and geographical reach of the great trade collapse in 2008-2009 and a rapid rebound of trade flows thereafter proved the important role of GVCs as ‘the world economy's backbone and the central nervous system’ that magnified and accelerated transmission of the crisis. In this context, it is more and more evident that a trade analysis based on gross measures has become less accurate. Intermediate goods (parts, components) which cross the border several times as they are used for further processing are counted several times. Therefore additional ways of looking at world trade flows would allow deeper understanding of the true trade linkages between countries.

The relatively stable evolution of the proportion of intermediate production in total imports over time in case of the EU contrasts with the outstanding increase in the case of China, due its role as a 'processing hub' in Asia. However, the increasing comparative advantage of China in research intensive goods partly reflects the gradual shift of its competitive position in the global production sharing. This change has an important policy implication for Europe going forward, as even more competitive pressures are to be expected.

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