Macro level analysis of factors contributing to value added: Technological changes in European countries

Abstract

In conditions of globalization and rapidly growing production fragmentation, generation of value added becomes an ultimate goal and a measure of economic performance. The study provides an analysis of factors contributing to value added at macro level in different European countries. The analysis includes a panel framework covering 27 European countries over the period 2006–2015. In order to investigate the differences across regions, three subsamples are considered, namely, developed economies, PIIGS (Portugal, Italy, Ireland, Greece and Spain) and Central-Eastern European Countries (CEEC). Pooled OLS, fixed effects and random effects models are used. The results indicate that increase of value added corresponds to budget discipline, quality of human capital improvement, strong currency and transparent institutions. It could be expected that currency depreciation improves performance of the value added of exported final goods. However, the results show the opposite evidence: currency depreciation causes the value added decrease in all groups. Thus, for transitional countries, it is important not only to join global production chains, but also to acquire a significant share in generation of value added in these chains based on technological changes.