Global value chains : a case for Europe to cheer up

A higher integration of firms in global value chains is - in the public debate - often seen with suspicion and frequently made the culprit of adverse economic developments, most notably competitiveness losses, import penetration, export compression, and job shedding. New indicators based on a decomposition of value added into its domestic and foreign components are better able to assess the challenges, but also the opportunities of higher fragmentation of production, arising for instance from economies being able to serve emerging export markets, and 'climbing up the value chain', via increasing international division of labour. In the last few years there has been a strong effort to construct databases, which allow us to proxy - admittedly, still only partially - the complex interactions that are increasingly taking place in global production and supply chains. Such statistics, aimed at measuring trade in value-added terms, show in many cases a different picture than the traditional trade indicators based on gross terms. If we apply such new indicators to Europe, the picture that emerges in terms of trade performance and competitiveness is more nuanced than standard statistics would suggest. The European economies have by and large been able to deepen their internal integration as well as to re-orient themselves towards higher skilled and higher value-added service activities. As a corollary, substantial job opportunities by exporting are also being created in service activities (when appropriately measured), which at times more than compensate for job losses experienced in the shrinking traditional manufacturing activities. This policy brief provides few examples of such developments and offers an overview of existing new value-added based databases, which provide a basis for the improvement of our assessment on global value chains in Europe and beyond.