How fragile are European GVCs? The role of functional diversification and implications for industrial policy

Andrea Coveri, Raffaele Giammetti () and Antonello Zanfei ()
Additional contact information
Raffaele Giammetti: University of Cassino and Southern Lazio
Antonello Zanfei: University of Urbino

Economia e Politica Industriale: Journal of Industrial and Business Economics, 2025, vol. 52, issue 3, No 5, 629-666

Abstract: Abstract This paper examines the relationship between functional diversification and foreign input reliance (FIR) in European countries, with a focus on manufacturing sectors. We propose that greater functional diversification is a key strategy to soften dependency on foreign inputs, thereby mitigating the risks associated with Global Value Chain (GVC) disruptions. We elaborate on recently developed indicators for GVC exposure based on international gross trade flows and test their association with a novel measure of functional diversification, proxied with data on Foreign Direct Investments (FDIs) across value chain activities. Our findings reveal that functional diversification is negatively associated with FIR, particularly from extra-EU sources, indicating that European countries can reduce exposure to GVC disruptions by diversifying value-adding functions. However, this relationship is also found with reference to the intra-EU FIR component, suggesting that functional diversification strategies undertaken at the level of individual member states may end up weakening European trade integration. We conclude that the EU’s Open Strategic Autonomy framework should carefully consider coordinated industrial strategies to strengthen the EU’s capacity to navigate GVC disruptions without undermining intra-EU trade ties.

Keywords: Global value chains; FDI; GVC exposure; Europe; Diversification (search for similar items in EconPapers)
JEL-codes: F12 F60 O14 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s40812-025-00349-0 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:epolin:v:52:y:2025:i:3:d:10.1007_s40812-025-00349-0

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/40812

DOI: 10.1007/s40812-025-00349-0

Access Statistics for this article

Economia e Politica Industriale: Journal of Industrial and Business Economics is currently edited by C. Cambini, M.G. Colombo, L. Piscitello, L. Rondi and A. Zanfei

More articles in Economia e Politica Industriale: Journal of Industrial and Business Economics from Springer, Associazione Amici di Economia e Politica Industriale
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().