Global Value Chains: Implications for the Austrian economy

This study focuses on the implications of rising global value chains (GVCs) on international trade and analysis the impacts on small open economies. Small open economies rely heavily on international trade and are highly integrated in global production networks but have so far been hardly considered in the literature. On the example of Austria, an industrialized small open economy in central Europe, we addressed the role of small open economies in a globalized economy. Based on the WIOD database we apply network analysis and use GVC as well as competiveness indicators to measure the associated risks as well as benefits. Findings imply for Austria a sharp turn in the focus of trade policy away from the traditional gross trade perspective. Austria’s competitiveness has been strengthened considerably via the participation in GVCs since resource and endowment constraints have been overcoming easier and foreign inputs are used in the production processes efficiently enabling vast economies of scale. Results also reveal that the promotion of service oriented activities which are a main source of the domestic value added content in manufacturing exports is of key importance for Austria’s competitiveness on the global market. In particular we found a mutual integration of EU enlargement countries of 2004 and Austria: Austria’s intermediate exports are mainly characterized by high knowledge- and service-intensive manufacturing goods, while the EU enlargement countries of 2004 specialize in low-skilled employment and less knowledge intensive services.