Wiener Institut für
Internationale
Wirtschaftsvergleiche
The Vienna Institute for
International Economic
Studies
www.wiiw.ac.at
European industries and the ongoing
process of change – what challenges and
opportunities?
Robert Stehrer
The Vienna Institute for International Economic Studies – wiiw
www.wiiw.ac.at
Joint conference of the EPC-EESC “A New Industrial Policy for Europe”,
November 12, 2014, Brussels.
2
Content
 Manufacturing in the global and long-term perspective
 EU in the ‘global value chain’
 Inside EU
 Manufacturing in the (global) value chain

3
Long-term trends – nominal value added and employment shares
Declining shares



Demand shifts


Income
Relative prices
Relative prices
Offshoring and imports
Even more pronounced

Source: EU KLEMS, wiiw calculations
Productivity

4
Share of manufacturing value added in % of GDP
Source: WIOD, wiiw calculations



World share ~18%
Emerging markets show larger shares and gain weight
Positive real growth rates

5
World market shares relative
Manufacturing world market shares, to GDP shares
in % of world manufacturing VA
Source: WIOD, wiiw calculations

6
International fragmentation of production and global value chains

7
Screwdriver economics
The iconic example – The iPod case
Source: Linden, et al. (2010)

8
International fragmentation of production and global value chains
 Fuzzy line between challenges and opportunities
 Fragmentation of production
-
Challenge:
Competition from abroad
Restructuring at firm, industry and country level
-
Opportunities:
Allows upgrading of production
Specialisation in (higher value added) activities
Better exploit comparative advantages at finer scale
 Emerging markets
-
Opportunities
Larger and dynamic markets
Increase in market size allows exploiting economies of scale
-
Challenges
Competition with other suppliers in third markets
Role of FDI

9
Foreign VA content of exports
Value added exports
in % of exports
in % of GDP
Source: WIOD, wiiw calculations

10
Structure of EU-27 exports by sector
The structure of EU27's exports by sector (%)
Revealed comparative advantages for EU27, by sector
Agriculture, Hunting, Forestry and Fishing
Mining and Quarrying
Food, Beverages and Tobacco
Textiles and Textile Products
Leather, Leather and Footwear
Wood and Products of Wood and Cork
Pulp, Paper, Paper , Printing and Publishing
Coke, Refined Petroleum and Nuclear Fuel
Chemicals and Chemical Products
Rubber and Plastics
Other Non-Metallic Mineral Products
Basic Metals and Fabricated Metal Products
Machinery, Nec
Electrical and Optical Equipment
Transport Equipment
Manufacturing, Nec; Recycling
Electricity, Gas and Water Supply
Renting of M&Eq and Other Business Activities
Other Community, Social and Personal Services
Machinery, Nec
Transport Equipment
Chemicals and Chemical Products
Food, Beverages and Tobacco
Pulp, Paper, Paper , Printing and Publishing
Other Non-Metallic Mineral Products
Rubber and Plastics
Wood and Products of Wood and Cork
Basic Metals and Fabricated Metal Products
Renting of M&Eq and Other Business Activities
Other Community, Social and Personal Services
Electricity, Gas and Water Supply
Coke, Refined Petroleum and Nuclear Fuel
Manufacturing, Nec; Recycling
Leather, Leather and Footwear
Agriculture, Hunting, Forestry and Fishing
Textiles and Textile Products
Electrical and Optical Equipment
Mining and Quarrying
0
5
10
2000
15
2007
20
2010
-100
-75
-50
-25
2000
0
2007
Source: Fontagné et al. (2013); Study for DG Trade

25
50
2010
11
Inside EU – Specialisation challenges and opportunities
Note: Growth rates of manufacturing employment
Source: Politecnico di Milano

12
European Manufacturing Core and value added exports
Manufacturing share in % of GDP
Value added exports in % of GDP
60
LUX
IRL
50
HUN
CZE
MLT NLDBEL
SVK
EST
AUT LTUSVN
BGR
SWE
DNK
DEU
POL
LVA
FIN
2011
40
30
ROUGBR
ITA
ESPFRA
PRT
CYP
20
GRC
10
0
0
10
20
30
1995
40
50
Source: WIOD database, own calculations.

60
13
EU-27 specialisation dynamics, 1995-2011
Note: Figure shows deviations in shares of manufacturing and businesss services from EU-27 average in 1995 (green dots)
and 2011 (red dots)
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14
Core countries characterised by …
 Strong intra-EU (intry-core) fragmentation of production
 Increased particularly over last decade or so
 Particularly in high-tech industries (electrical equipment, machinery,
transport equipment)

15
EU manufacturing in the (global) value chain

16
Services cost shares in manufacturing industries, 1995 and 2011
in % of gross output
Source: WIOD; wiiw calculations

17
Manufacturing value chain share

How much value added is created in the EU for satisfying world demand for
manufacturing products?


i.e. also including demand for manufactured products in non-EU countries
i.e. also including VA in non-manufacturing EU industries
EU-27 manufacturing VA share and manufacturing GVC share
Source: WIOD; wiiw calculations

18
Services cost shares in manufacturing industries, 1995 and 2011
in % of gross output
 Large range across countries (30% to 15%)

Generally lower in EU-12

Generally increased, though not extra-ordinarily

Tend to be larger in medium-high and high-tech industries
 Business services between 5-10%
 Share of imported business services small

> 4%: Ireland, Netherlands, Finland, Sweden

1-2% in majority of countries (particularly smaller and CEECs)
 Business services are however most dynamic component over time
 Econometric results suggest positive effects of BS on manufacturing
performance

Large economies: mostly domestic

Small economies: foreign

19
Change in MVC share and share of business services in MVC, 1995-2011, in ppts
Source: WIOD; wiiw calculations

20
Summary
 Manufacturing in the global and long-term perspective
-
Decline follows long-term trend
EU as a global actor performs reasonably well
But: no guarantee for the future
 EU in the ‘global value chain’
- Increasing world-wide fragmentation of production
- Increasing share of GDP created due to value added exports
- EU trade balance is more or less balanced
 Inside EU
- Pronounced patterns of specialisation
- EU manufacturing core and business service providers
- Also in terms of ‘manufacturing value chain’
 Manufacturing in the (global) value chain
- Business services play more important role (though maybe less dynamic
as expected)
- Do not compensate for loss in manufacturing share

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Summary
 Need of a strong European manufacturing base
-
R&D, productivity drivers, etc.
Provision of capital goods (also for services activities)
Strong intra-manufacturing linkages important for learning-by-doing
 EU specialisation patterns
-
Agglomeration gains
EU fragmentation and diversification
