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Daria Taglioni

To foreign investors, the European Union (EU) is a synonym for the world’s largest single market, brand names with vast and dense corporate networks that stretch across the world, integrated regional and global value chains, and a stable and harmonized legal, regulatory and political environment. As argued in this chapter, EU countries will, for three reasons, ultimately prosper more in the twenty-first century global economy if they reinforce regional integration, invest more in people and in the key areas for competing successfully in high-value industries and tasks. First, the EU single market, of 446 million upper-middle-income and high-income workers and consumers (excluding the United Kingdom), is possibly the most valuable asset that EU countries have. It offsets some notable comparative disadvantages: EU countries typically lack natural resources, have ageing populations, and are innovation laggards, particularly in digital technologies and platforms, towards which trade and economic activity are increasingly gravitating. Second, with up to 70 percent of global trade happening through global value chains, traditional policies may adversely affect firms’ competitiveness and job protection. Competing successfully in the global economy of the twenty-first century requires the range of deep and pervasive provisions that the EU common regulatory framework offers. They help to ensure that cutting-edge knowledge continues to reside in the continent, and that learning and growth spill over from the European and global centres of excellence to the entire EU population. Third, the information economy is increasingly dominated by powerful platforms, in which the EU plays a minor role. While business models leveraging digital platforms can generate great wealth and employment, they may also disrupt traditional industries and shake up public services. Whether and how that happens will depend on how these sectors are regulated and how international activity affects them. Countries are going to go different ways based on their value systems, and a process involving international conversations on rules and treaties will be needed. Yet the scale offered by the EU and the relatively homogeneous value system delivers better scale and negotiating power to EU countries to ensure that digital platforms support employment, deliver safe and high-quality public goods, and produce positive broad social impacts. Clearly, given the increased pace of change in the global economy, the EU model of integration needs to keep evolving and adapting. Ultimately, EU integration can be a formidable asset for ensuring that globalization works in the interest of EU citizens, provided the EU becomes more focused on people (besides firms) and on risk-sharing (besides market discipline), recommits to investing in infrastructure and high-quality business and institutions, and prioritizes forging a role of relevance in the digital economy and in innovation.

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Sebastián Sáez and Daria Taglioni

Enhancing services competitiveness is important because countries increasingly operate in a context of internationally fragmented models of production. This chapter is a contribution to the empirical literature on services competitiveness and aims to support policymakers to assess how policies may influence the efficiency of services determinants and of services exports, and to address the main policy constraints for the growth and development of trade in services. The chapter provides a framework for conducting an analysis and diagnostics of trade competitiveness of the services sector and provides policy responses to overcome identified constraints.

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Victor Stolzenburg, Daria Taglioni and Deborah Winkler

The emergence of global value chains has opened up new ways to achieve development and industrialization. However, new evidence shows that not all countries have gained from participating in global value chains, and that country-specific characteristics matter for economic upgrading in global value chains. Using a panel data set of developing and industrialized countries at the sectoral level, this chapter first finds that global value chain participation as a buyer and especially as a seller increases domestic value added. Second, the chapter examines whether policy can amplify economic upgrading through global value chain integration. It finds that all assessed policy areas – targeting investment and trade flows, the business climate and institutions, as well as the quality and conditions of inputs and output – consistently magnify the effects of global value chains on domestic value added – in particular, through integration as a seller.