The convergence in domestic value-added of exports in the EU

Abstract

Difficulties in measuring domestic value-added in exports (DVA) have led to the development of alternative measures of trade in value-added terms. These new measures have enabled more accurate estimates that reveal that the EU countries from Central and Eastern Europe (CEE10) exhibit an approximately five percentage points lower DVA share of exports compared with other EU countries (EU15). The lag is on average the highest in knowledge-intensive manufacturing sectors (eight percentage points) and the lowest in knowledge-intensive services (0.3 percentage points). However, this article argues that the CEE10 economies have acquired new knowledge by participating in GVCs and thus have gradually started increasing their level of DVA. Based on EU trade data, this article presents evidence of convergence of DVA in manufacturing and especially in the services sector. It is also shown that a negative relationship exists between participation in GVCs and DVA in the CEE10 economies that is declining over time in both manufacturing and services exports.

Keywords:

• Global value chains
• international trade
• value-added in exports

Acknowledgements

The author would like to thank Dr Jože Damijan and Dr Črt Kostevc for their invaluable advice and remarks throughout this work, and also the editor, Dr Richard Connolly, and an anonymous referee for their helpful suggestions.

Notes

1. These new forms of trade have also been referred to as global commodity chains (Gereffi & Korzeniewicz, 1994), international production networks (Borrus, Ernst, & Haggard, 2000; Ernst, 1997), global production networks (Henderson , Dicken, Hess, Coe and Yeung, 2002) and global supply chains (Baldwin, 2011, 2012; Baldwin & Lopez-Gonzalez, 2013).

2. Although these terms are often used interchangeably, ‘outsourcing’ refers to when a company relocates its activity (e.g. production process) to an outside provider (at home or in foreign country). By contrast, ‘offshoring’ denotes the geographic relocation of activity that can take the form of relocation to independent contracted providers abroad or relocation of particular tasks to a company’s foreign affiliates (De Backer & Yamano, 2012).

3. The participation rate identifies the extent to which countries are involved in GVCs and is defined as a share of (1) foreign inputs in gross exports, plus (2) domestically produced inputs used in third countries’ exports (forward participation) in gross exports.

4. Two sectors are excluded from the following stages of the analysis: Coke, Refined Petroleum and Nuclear Fuel (since EU countries (except UK) do not have their own production) and Sector Private Households with Employed Persons (since the estimated DVA in the majority of countries has extreme values 0 or 1).

5. Although East Asian countries registered (on average) a declining trend in DVA, this was not the case in China, where DVA was increasing from 2005 to 2009.