The role of complementary interregional linkages for functional upgrading and downgrading of global value chains in EU regions

Abstract

This paper studies the role of complementary interregional value chain linkages in functional upgrading and downgrading in global value chains in EU regions. It adopts an evolutionary approach to assess functional upgrading and downgrading using relatedness and economic complexity metrics. The empirical analysis of 199 EU regions between the years 2000 and 2010 shows that, while local capabilities remain crucial, complementary interregional value chain linkages increase (decrease) the likelihood of functional upgrading (downgrading) in GVCs. Regions engaged in GVCs in which partner regions offer complementary capabilities are more likely to specialise in more complex functions and to retain such specialisations over time. By doing so, this paper proposes a new theoretical-analytical framework to identify partner regions that can offer complementary capabilities in GVCs.