Global Value Chains and Local Innovation Systems in Southern Europe: The Coevolution of Technology, Trade and Finance, and the Technological Divide

Project Information

GlobaLISe

Grant agreement ID: 799942

DOI

10.3030/799942

Project closed

EC signature date 19 April 2018

Start date 2 July 2018

End date 1 July 2020

Funded under

• EXCELLENT SCIENCE - Marie Skłodowska-Curie Actions

Total cost

€ 152 653,20

EU contribution

€ 152 653,20

Coordinated by

Centre for Planning and Economic Research
Greece

Periodic Reporting for period 1 - GlobaLISe (Global Value Chains and Local Innovation Systems in Southern Europe:The Coevolution of Technology, Trade and Finance, and the Technological Divide)

Reporting period: 2018-07-02 to 2020-07-01

Summary of the context and overall objectives of the project

The increasing technological and organisational complexity and fragmentation and delocalisation of production through corporate outsourcing and offshoring have fomented the rise of global value chains (GVC) as the linchpin of the world economy. The emerging complex global production network (GPN) of intertwined GVCs supports unprecedented flows of trade in intermediate goods that currently outstrip those of final goods. GVCs as pipelines not only of trade and capital but also of technology flows play a paramount role in the diffusion of technological knowledge that drives productivity and growth in advanced industrial economies and is vital for innovation systems to maintain their competitive edge. GVCs thus have a decisive impact on the industrial structure and technological dynamics of local economies, whose position in the GVCs and value creation and capture capacities are determined by their knowledge production capacities.

This project studies from a macro perspective the structure, dynamics and inter-layer interactions of the multiplex network, which consists of the overlaying and co-evolving networks generated by flows of trade, capital and technological knowledge, and spans the European Single Market – the largest and most integrated trade bloc in the world with established free movements of goods, services and factors of production and minimal institutional barriers to trade, capital and technology flows. The nodes of this network are not individual business units but entire economies. Trade flows are traced through multiregional input-output (MRIO) data, capital flows through bilateral foreign direct investment (FDI) data, and technological knowledge flows through patent co-invention and citation data. Among other hypotheses, the project examines whether and to what extent the technological divide between Europe’s north-west core and south-east peripheral economies is determined by their mode of insertion in the European Production Network (EPN).

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

The project has a theoretical, an empirical and a normative dimension.

[1] The theoretical analysis involved:

- Extensive literature reviews in the fields of international trade, especially on the topic of GVCs; MRIO analysis; MNCs and FDI; economic geography of innovation; ‘heterodox’ paradigms in economics (post Keynesian, evolutionary/neo-Schumpeterian, and econophysics); and advanced modelling methods;
- The formulation of a theoretical framework based on a comprehensive critique against the neoclassical research programme in economics and the epistemological principles of a ‘progressive’ systemic research programme that bridges the gap between heterodox theories. The output is a paper published in the Journal of Economic Methodology titled “Emergence versus neoclassical reductions in economics”.

[2] The empirical analysis and modelling involved:

- The collection, cleaning, harmonisation, geo-referencing and linking across various databases of secondary data. The output is the main relational database of the project;
- The calculation of vertex, edge, local and global topology measures of networks of co-inventors and forward and backward citations in EPO patent applications, bilateral FDI in- and outflows, and MRIO flows; the calculation of network statistics (i.e. distributions of various topology measures); and the detection of community structure (including centre-periphery structure). The output is a draft paper tentatively titled “The network structure of European trade, capital and technological knowledge flows”.
- The construction of mathematical and statistical models of network formation, evolution and interaction (mainly exponential random graph, reaction-diffusion, maximum entropy and Markov random field models), as well as an agent-based macro-model, and their calibration and testing with real data. This ongoing research activity is expected to lead to the production of two publishable papers.
- The construction and estimation of a spatial interaction model, which incorporates technological knowledge and FDI flows as explanatory variables for flows of trade in value added. The output is a working paper titled “Technological knowledge flows in global value chains: A spatial interaction model with network effects”.

[3] The normative analysis involved:

- A review of the history of industrial policy in its politico-economic context, a critique to conventional policy approaches, which overlook the global network structure of the production and innovation processes, and the proposal of strategic policy instruments for upgrading Europe’s peripheral economies in GVCs, specifically aimed at mitigating their technology gaps and current account imbalances. The output is a working paper titled “The re-emergence of industrial policy in the era of global value chains”.
- A critical review of EU ‘smart specialisation’ policies, which misconstrue the Ricardian concept of comparative advantage and eventually reduce Europe’s responsiveness to emerging techno-economic paradigms and deteriorate its centre-periphery divides in. the long run; and the proposal of alternative policy approaches that promote techno-industrial diversity, flexible integration and upgrading in GVCs. The output is a working paper titled “Reflections on the dodo: What is ‘smart’ in policy-driven specialisation?”.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

From the theoretical point of view, the project affirms the need for a systemic paradigm in economics founded on an event-based, relational ontology and the premise of emergence, that breaks away from neoclassical reductionisms, bridges several heterodox strands of economic theory, and recognises the irreducible, complex, evolving, non-deterministic and network-like nature of economic systems.
From the methodological point of view, the project uses, develops and combines cutting-edge mathematical, statistical and computational modelling tools, and applies them in novel directions. The fellowship has supported the researcher’s training in these advanced methods.

From the empirical point of view, the project maps and measures the multiplex network of European trade, capital and technological knowledge flows, and analyses its structure, dynamics and inter-layer interactions, shedding light on the role of GVCs in technology diffusion and, conversely, on the importance of innovative capacities in positioning an economy in GVCs.

From the normative point of view, the empirical findings of the project have significant implications for industrial, RTDI and cohesion policies. The project critically examines existing EU industrial policies and affirms the need for a novel, ‘holistic’ and equitable pan-European industrial policy with national and regional ramifications, which, by embracing the systemic paradigm and the network perspective of the production and innovation processes, will acknowledge the complex co-evolutionary processes involved in techno-industrial transitions and the importance of developing synergies instead of merely intensifying competition. This new industrial policy will concurrently accelerate the overall growth, technological transition and socio-economic cohesion of the EU by fostering diversity and flexible integration of national production and innovation systems in the European Production Network in a way that enables the knowledge-driven techno-industrial upgrading of peripheral economies, instead of just relying on their current ‘comparative advantages’.

Network of technological knowledge flows (all sectors, 2000-2014)

Network of intermediate trade flows (all sectors, 2000-2014)