The impact of COVID-19 on European global value chains: Some concerns about diversification and resilience

Abstract

The disruptions and supply problems caused by the COVID-19 pandemic in the European Union (EU) have raised several issues concerning the EU’s participation in Global Value Chains (GVC). One of the most discussed points in the current debate is the need to increase economic and productive resilience. This paper describes the participation of the EU in GVC and the possibilities of geographical and productive diversification by analyzing the European export basket similarity with China and the relative technological advantages. Furthermore, building up on previous works, we propose a regression equation which allows us to analyze formally the impact of the pandemic on EU exports, and to examine the individual contributions of the domestic supply, international demand, and GVC disruptions shocks. Our findings suggest that the new member countries that joined the EU in 2004, have a more similar export basket with China. Also, we find that the fall in EU exports was mainly due to the international demand shock and the GVC disruption shock; while the EU dependence on the GVC networks is confirmed, disruptive effects are less severe for more technologically sophisticated products.