EU’s decreasing role in value chains linked to innovation: Study

The decreasing role of the European Union (EU) in value chains is linked to technological innovation and human capital, a new study found.

Noting that the most obvious explanation for the EU’s declining global trade integration is its “relatively smaller size in the world economy”, the study by Brussels-based think-tank Bruegel said on Sunday that most of the diminishing global role of the bloc in manufacturing value chains is a consequence of much weaker domestic demand growth compared to the rest of the world, reports Xinhua news agency.

Raising doubts about the allegation that “unfair Chinese cost-price competition” is to blame for the EU’s declining global trade integration, the study said there is also an issue with Europe’s relative competitiveness.

“In fact, Chinese wages and labour costs more generally have been increasing for years, meaning the price-level gap with developed economies has shrunk significantly in the last two decades,” the study said.

It added that the price argument becomes less relevant for high-end sectors including the electronics sector.

Human capital and innovation are undoubtedly major factors in China’s increasing ability to compete with European exports, the study said, suggesting that individual governments and the EU have room in a number of areas to support competitiveness gains without distorting fair competition.

“For instance, they should reorient education, lifelong learning and active unemployment policies to build the knowledge capacities and skills for technological adoption and innovation, and to increase resilience to shocks,” the study said.