The European value chain network: key regions and Brexit implications

Abstract

ABSTRACT This paper provides an original empirical analysis of the European regional production network, making use of the interregional world input-output database. Similar to the concept of key sectors, a network analysis of key regions and key region-sectors of the EU in the global value chains (GVC) is carried out, taking into account both direct and indirect linkages. Additionally, a clustering analysis is performed to indicate the existence of highly interconnected groups of regions and the polarized structure of the European value chain network. The analysis is extended to quantify implications of Brexit, showing the relative vulnerability of the most internationalized regions and the differentiated sectoral impact according to the geographical origin, as London would mostly affect (tourism and financial) services, whereas the rest of the UK regions would mainly affect manufacturing activities. The findings suggest the considerable heterogeneity of European value chains as a result of varying levels of urban hierarchy, trade specialization between and within countries as well as sectoral concentration of regional economies. The empirical findings can provide valuable policy insights for supporting coordinated economic strategies to enhance regional competitiveness, development and cohesion, and reduce trade imbalances and spatial inequalities in the EU.