Intangibles, innovation, and sector specialization in global value chains: A case study on the EU's and the UK's manufacturing industries

Abstract

• An input-output framework for the quantification of intangibles as knowledge flows in sectoral linkages. • Classification of intangibles into domestic and imported. • Documented rise in the trade in intangibles for the EU's and the UK's manufacturing industries. • Domestic intangibles are correlated with innovation (patents). • Imported intangibles and patents contribute to manufacturing sectoral specialization in GVCs. • Need for concrete industrial and innovation policy at the national and the EU level. This study explores intangibles in global value chains (GVCs) and empirically investigates their effects on the sectoral specialization of 19 manufacturing industries from the EU-27 and the UK during 2000–2014. We draw data from the newly constructed GLOBALINTO Input-Output Intangibles Database, which was developed under a novel framework for the quantification of intangible assets that treats them as knowledge-intensive intermediate inputs and traded commodities in GVCs. We use this approach to introduce a novel origin dimension by distinguishing between domestic and imported intangibles. The main findings suggest that cross-country intangibles’ trade for the manufacturing sectors in the EU was on the rise during 2000–2014 and appears to be unaffected by the economic crisis. Diverse patterns of intangibles utilization emerge and highlight the significant heterogeneity among different sectors and across countries. Furthermore, we identify a significant correlation between domestic intangible inputs and innovation production (patents) while imported intangibles and patents appear to contribute to sectoral specialization, especially for innovative countries. Our results highlight the need for concrete policy frameworks at the national and the EU level that facilitate trade in intangibles and encompass the heterogeneity among different sectors and different national agendas to improve competitiveness and growth.