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The transmission of productivity through global value chains: formal concept and application to recent developments in the EU27

Abstract: 

Inspired by the ideas developed in Timmer (2017), this paper proposes a measure of Global Value Chain – Total Factor Productivity (GVC-TFP) and a decomposition of its changes into three informative factors: changes in factor requirements associated with efficiency gains/losses in the use of capital and labour, shifts in the distribution of value added due to changes in factor shares, and shifts in the composition of the value chain, which are mainly due to geographical relocation of production stages. Based on the World Input-Output Database (WIOD), we use this methodology to analyse the evolution of GVC-TFP in different sectors across EU27 Member States between 2000 and 2014. Comparing the periods before and after the Great Recession, we find a sharp contrast between the intensity, the sectoral composition, geographical contributions and the nature of the driving forces of GVC-TFP developments. In the context of the economic crisis following the COVID-19 pandemic, in which import dependency and supply security mark the debate on the future of the EU Single Market, we find that our methodology could contribute to a comprehensive assessment of strategic restructuring of value chains.