Functional Positioning and Innovation in GVCs Evidence from European Industries ECON-01/A

This dissertation examines, both conceptually and empirically, the relationship between functional specialization and innovation performance within European industries embedded in global value chains (GVCs). Drawing upon the Sectoral Innovation Database (SID) and FDI Markets (FDI-M), the research contributes original quantitative evidence on 38 manufacturing and service industries across five advanced European economies—Germany, France, Italy, Spain, and the Netherlands—together accounting for approximately 70% of the European Union’s GDP. In doing so, this work extends the “smile-curve” hypothesis that upstream and downstream specializations command higher value capture than midstream specializations beyond its traditional interpretation in terms of monetary value capture to encompass innovation capacities of industries as a distinct and measurable dimension of value creation. This research finds that industries specialized in pre- and post- production functions exhibit significantly higher innovation rates than those specialized in production. Moreover, higher functional diversity—the dispersion of specializations across multiple GVC functions—is associated with stronger innovation propensities, particularly in product innovation. This relationship remains robust even after accounting for industry size, total FDI inflows, industry innovation expenditures, and country fixed effects in a controlled econometric investigation (chapter 3: section 4). The diversification effect is statistically and substantively significant only in service industries, not in manufacturing. In Manufacturing, innovation correlates primarily with the volume of FDI projects, regardless of their functional distribution. In Services, by contrast, the pattern of FDI distribution matters greatly. This is interpreted in terms the latter sector’s relative reliance on combinations of Intangible Knowledge Assets (IKAs) relative to the former. The empirical and theoretical contributions of this dissertation converge on a broader insight: innovation in global value chains must be understood as a functionally distributed, knowledge-intensive process of capacity building whose origins are, predominantly, but not exclusively, interactions between economic firms and communities. This perspective shifts the analytical focus from what industries produce to what functions they perform, and from where products are made to where ideas and capabilities are generated and applied.