Functional upgrading and downgrading in global value chains: Evidence from EU regions using a relatedness/complexity framework

Abstract

This paper adopts a relatedness-complexity framework to assess the likelihood of functional upgrading and downgrading in global value chains in EU regions in the period 2000–2010. We use relatedness and economic complexity measures based on value added content of gross exports and labour structures at the regional level. We show how economic complexity metrics can be used as an alternative for value added data, to measure both functional upgrading and downgrading in global value chains. We find that relatedness between functions (occupation-industry pairs) is a factor impacting both functional upgrading and downgrading. Regions tend to functionally upgrade their global value chains towards more complex functions that are related to functions in which they are specialised. And regions are more likely to functionally exit and downgrade in global value chains when they are not specialised in related functions.