Global Value Chains in the European Union: an input-output approach

de los Ángeles Gómez Benítez, María (2022). Global Value Chains in the European Union: an input-output approach. PhD thesis The Open University.

DOI: https://doi.org/10.21954/ou.ro.000151d0

Abstract

This thesis explores the role of Global Value Chains (GVCs) in the structure of production and final export dynamics in the EU for the period 2000-2014. It also distinguishes between the EU core and periphery regions according to the domestic wage level and subsystem groups.

Drawing on classical economics and input-output techniques, this thesis develops an original accounting framework that provides three new measures that deepen our understanding of the impact of GVCs on EU export performance and cost structures. First, it offers a new decomposition of final exports into two nominal variables (exchange rates and price indices) and two real variables (physical labour productivity and quantity of labour induced foreign demand). Second, inspired by Braun’s unequal exchange model, it proposes a (previously unexplored) contrafactual exercise to estimate the labour cost-saving in GVCs through the vertically integrated distribution of labour and vertically integrated nominal wages, disaggregated by geographic origin. Finally, it suggests an original measure of unit labour costs based on the vertical integration approach, which is based on physical units of production instead of income distribution variables based on value added.

Empirically, the thesis fills the existing literature gaps by addressing three objectives. First, it identifies monetary factors (the exchange rate and price index) as the main drivers of economic activity in the EU region, while real variables (productivity and required labour) lead the growth of final exports in the EU periphery. Second, this work finds that the international wage cutting strategy positively affects the EU core GVCs, but not the EU periphery. Nevertheless, in both cases, this wage cutting strategy slows down improvements in labour productivity, particularly in the core region. Finally, in the short run, the wage cutting strategy can help to sustain final export competitiveness, but in the long run this requires an improvement in technical conditions.

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