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Growth in Chains: EU Value Chain Productivity and its Slowdown

Author

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  • Kuusi, Tero
  • Lähdemäki, Sakari

Abstract

We study Europe’s post-2008 productivity slowdown using novel total factor productivity (TFP) measures that follow production beyond individual industries in global value chains (GVCs). We collect a newset of stylized facts: (1) the slowdown is broad-based, with productivity growth weakening both in final-producer industries and in upstream industries; (2) the staggered entry into force of bilateral investment treaties with China is followed by higher value-chain TFP and greater business-intangible investment; while (3) the gains associated with technology intangibles are weak. We use these facts to discipline a stylized two-region general-equilibrium model with business capabilities, technology-related knowledge, and cross-border knowledge spillovers. The calibration supports a two-stage interpretation of Europe’s experience: (1) sizeable initial integration gains because accumulated business capabilities convert market access into productivity, and (2) later losses when technology improvements are converted into productivity more effectively elsewhere.

Suggested Citation

  • Kuusi, Tero & Lähdemäki, Sakari, 2026. "Growth in Chains: EU Value Chain Productivity and its Slowdown," ETLA Working Papers 146, The Research Institute of the Finnish Economy.
    • Handle: RePEc:rif:wpaper:146
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    Keywords

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    JEL classification:

    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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