Euindustrialstructure 7066 PDF

EU industrial structure
2011
Trends and Performance
European Commission Enterprise and Industry
ISSN 1831-3043
EU industrial structure
2011
Trends and Performance
European Commission Enterprise and Industry
ENTERPRISE & INDUSTRY MAGAZINE The Enterprise & Industry online magazine (http://ec.europa.eu/enterprise/e_i/index_en.htm) covers issues related to SMEs, innovation, entrepreneurship, the single market for goods, competitiveness and environmental protection, better regulation, industrial policies across awide range of sectors, and more. The printed edition of the magazine is published three times ayear. You can subscribe online (http//ec.europa.eu/enterprise/e_i/subscription_en.htm) to receive it in English, French, German or Italian free of charge by post.
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This publication has been prepared by Unit B4, Economic Analysis and Impact Assessment, Enterprise and Industry DG. More information on the European Union is available on the Internet (http://europa.eu). This publication is financed under the competitiveness and innovation framework programme (CIP) which aims to encourage the competitiveness of European enterprises. Cataloguing data can be found at the end of this publication. Luxembourg: Publications Office of the European Union,2011. ISBN978-92-79-20733-4 ISSN1831-3043 doi:10.2769/28487 European Union,2011 Reproduction is authorised provided the source is acknowledged. Printed in Luxembourg
Table of Contents
Executive summary8 Overview12
ChapterI
The aftermath of the crisis along and uneven recovery(?)15 I.1 Recession and recovery(?) 15 I.1.1 Manufacturing recession and recovery(?)16 I.1.2 Services recession and recovery(?) 23 I.2 Sector developments: the current recovery(?)24 I.2.1 Recent developments in manufacturing industries 24 I.2.2 Recent developments in services industries 30 I.3 Annex Figures32
Chapter II
Changes in EU Industrial structure35 II.1 The shares of industries and sectoral specialisation in the EU35 II.1.1 Structural change in the EU 35 II.1.2 Member states sectoral specialisation 39 II.2 Skill and technology specialization 45 II.2.1 Changes in skills specialization 45 II.2.2 Changes in technology specialization 48 II.3 Size distribution of enterprises 50 II.4 Services output of manufacturing51 II.5 Intersectoral spillovers acase study52 Appendix figure55
Chapter III
Drivers of Sector Growth and Competitiveness57 III.1 Output growth across sectors57 III.2 Sectoral competitiveness indicators 60 III.2.1 Labour productivity 63 III.2.2 Unit labour costs 67 III.3 Factors of production 69 III.3.1 Labour 69 III.3.2 Human capital 71 III.3.3 Gross fixed capital formation74 III.3.4 Energy intensity 77 III.3.5 Technology 78 III.3.5.1 R&D 80 III.3.5.2 Patents81 III.3.5.3 Innovation 84 III.4 Demandside drivers: asectoral picture 86 III.4.1 Private Consumption 86 III.4.2 Investment demand91
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EU industrial structure 2011 Trends and Performance
Chapter IV
International competitiveness of EU industry95 IV.1 EU importance in world trade95 IV.1.1 Goods95 IV.1.2 Services 98 IV.2 EU manufacturing and services competitiveness by sector 100 IV.2.1 EU trade in manufactures by destination 100 IV.2.2 Export Market Shares103 IV.2.3 Sectoral trade balance 105 IV.2.4 Revealed comparative advantage 106 IV.2.4.1 RCA in manufactures 106 IV.2.4.2 RCA in Services 106 IV.3 Intraindustry trade119 IV.4 The role of technology in EU sectoral trade123 IV.5 Trade in intermediate goods124 IV.6 International movement of factors of production129 IV.6.1 FDI129 IV.6.2 Internationalisation of R&D133
Annexes
Annexes 137 A.1 Statistical nomenclature137 A.2 List of abbreviations 145 References146
Table of Contents
List ofFigures
Figure I.1: Growth rates (T/T-12) in manufacturing in the EU, Japan and the US from1990 to June2011(monthly data). . ....................................................................................................................................................................16 Figure I.2: Figure I.3: Downturns and recoveries in EU-27industrial production since1990....................................................................................... 17 EU Manufacturing growth rates (T/T-12) from1991to2010(monthly data)............................................................................18 from peak and months of recovery for EU-27manufacturing production ..............................................................................19 Figure I.5: Capital, Durable and Intermediate goods were most heavily hit during the latest recession...........................................19 Figure I.6: Decline in output from Peak to Trough (%) and number of months of falling output for EU-27 industries during the latest crisis11..........................................................................................................................................................20 Figure I.7: Figure I.8: Figure I.9: Figure I.10: Percentage of manufacturing industries with very low growth rates in1991-2011.............................................................21 Growth in EU services industries1996-2011(%)..................................................................................................................................23 Growth rates in EU services industries compared to the whole EU economy1996-2010(%) . .........................................24 EU manufacturing diffusion index from January1991to June2011(monthly data)............................................................25 output for EU-27industries since the latest crisis...............................................................................................................................26 Figure I.12: EU-27manufacturing growth rates of production and new orders (T/T-12) for manufacturing goods from January2001to June2011...............................................................................................................................................................28 Figure I.13: EU-27manufacturing orderbooks levels, stocks of finished products and production expectations from January1985to February2011(monthly data).........................................................................................................................28 Figure I.14: Increasing probabilities of contraction in the end of2011..............................................................................................................29 between1996and2011(monthly data).................................................................................................................................................31 Figure I.16: Decline by country in manufacturing output from peak to trough (%) and number of months of falling output in EU-27during the latest crisis................................................................................................................................32 Figure I.17: Recovery by country in manufacturing output from the trough to March2011(%) and number of months of increasing output in EU-27since the latest crisis...........................................................................32 Figure II.1: Figure II.2: Figure II.3: Figure II.4: Figure II.5: Figure II.6: Figure II.7: Figure II.8: EU Structural change1997-2009(% of GDP)........................................................................................................................................36 Distribution of EU countries by GDP shares of manufacturing and market services in2009............................................36 EU industry shares in GDP in1997and2007% ..................................................................................................................................38 Change in the share of sectors in the EU in1997-2009(percentage points)............................................................................39 Ranking of countries by degree of specialisation...............................................................................................................................41 Large economies are less dependent on a few sectors....................................................................................................................42 Distribution of value added by enterprise size in2007(%).............................................................................................................51 Services as shares of manufacturing output in1995and2005(%)..............................................................................................52 and productivity in rubber and plastics . ..............................................................................................................................................53 Figure II.10: Figure II.11: Figure III.1: Figure III.2: Figure III.3: Figure III.4: Figure III.5: Figure III.6: Figure III.7: Figure III.8: Figure III.9: Anontechnology shock has permanent effects on employment only . .................................................................................54 Sector share in EU-27GDP in2009(%)....................................................................................................................................................55 Value added average annual growth rate in the EU in19952009(%)...............................................................................58 EU average annual production growth rate in1995-2010(%).......................................................................................................59 EU average annual production growth rate in1995-2010(%).......................................................................................................60 EU value added in1995-2010(1995=100)............................................................................................................................................61 EU labour productivity per person employed in1995-2009(1995=100).................................................................................61 EU ULC (index,1995=100)..........................................................................................................................................................................62 EU relative prices (Industry =100)............................................................................................................................................................62 Labour productivity growth vs changes in relative prices in1995-2009...................................................................................63 Annual growth in EU labour productivity per person employed1995-2009(%)...................................................................64 Figure I.15: Production and demand expectations: EU services and manufacturing industries
Figure I.4: EU-27recessions and recoveries in the last two decades. Percentage deviations
Figure I.11: Increase in output from the trough to June2011(%) and number of months of increasing
Figure II.9: Atechnology shock in the motor vehicle industry has permanent effects on employment
Figure III.10: Average annual growth in labour productivity2000-2010(%). Production per hours worked........................................66 Figure III.11: Average annual growth in labour productivity1997-2010(%). Production per employed................................................67 Figure III.12: Recent ULC fluctuations are driven mainly by productivity developments.............................................................................68 5

Figure III.13: Average annual growth in unit labour costs in EU manufacturing by industry2001-10(%)..............................................69 Figure III.14: Average annual growth of persons employed in the EU1995-2009(%)....................................................................................70 Figure III.15: Employment by educational attainment in the EU-27in2009. .....................................................................................................73 Figure III.16: EU GFCF growth rates based on selected countries in1995-2009...............................................................................................75 Figure III.17: Annual growth rates of GFCF in manufacture of transport equipment in France, Germany, Italy and Spain1995-2009.....................................................................................................................................................................................76 Figure III.18: EU and US R&D expenditure as shares of value added in sectors in2006(%).........................................................................80 Figure III.19: EU R&D expenditure as shares of value added in sectors in1997and2006(%).....................................................................81 Figure III.20: EU-27sectors by patent intensity (averages in2005-06and2006-07) .....................................................................................83 Figure III.21: EU sectors by patent performance relative to the rest of the world in2004-06.....................................................................84 Figure III.22: Innovative enterprises as apercentage of all enterprises in the EU-27in2008(%)...............................................................85 Enterprises which introduced new or improved products to the market as ashare Figure III.23: of all enterprises engaged in innovation activity in the EU-27in2008(%)...............................................................................86 Figure III.24: Shares of goods and services in private consumption in constant and current prices in seven EU countries from1980to2009...............................................................................................................................................87 Figure III.25: Private consumption shares (current prices) in seven EU countries in1980and2008.........................................................88 Figure III.26: EU-27sectoral shares of private consumption in2008% of total consumption....................................................................89 Figure III.27: Private consumption in EU-15and in EU-27in1996and2008(average annual percentage growth rates in constant prices)................................................................................................................................................................................90 Figure III.28: EU-27investment breakdown in2010(% of total current price) . ................................................................................................91 Figure III.29: Investment average annual growth rate in the EU-27and EU-15:1997-2010(%)....................................................................92 Figure IV.1: Figure IV.2: Figure IV.3: Figure IV.4: Figure IV.5: Figure IV.6: Figure IV.7: Figure IV.8: Figure IV.9: EU accounts for almost half of world exports of services (%).........................................................................................................99 EU accounts for most of world imports of services (%)....................................................................................................................99 EU-27RCA index in2009............................................................................................................................................................................107 EU-27trade in manufactured products RCA index in2009................................................................................................... 109 US trade in manufactured products RCA index in2009. ......................................................................................................... 109 Japan trade in manufactured products RCA index in2009....................................................................................................110 Brazil trade in manufactured products RCA index in2009.....................................................................................................110 China trade in manufactured products RCA index in2009.................................................................................................... 111 India trade in manufactured products RCA index in2009...................................................................................................... 111
Figure IV.10: Russia trade in manufactured products RCA index in2009................................................................................................... 112 Figure IV.11: EU-27trade in services RCA index in2009. ....................................................................................................................................116 Figure IV.12: US trade in services RCA index in2009...........................................................................................................................................116 Figure IV.13: Japan trade in services RCA index in2009.................................................................................................................................... 117 Figure IV.14: Brazil trade in services RCA index in2009..................................................................................................................................... 117 Figure IV.15: China trade in services RCA index in2009.....................................................................................................................................118 Figure IV.16: India trade in services RCA index in2009......................................................................................................................................118 Figure IV.17: Russia trade in services RCA index in2009....................................................................................................................................119 Figure IV.18: GrubelLloyd index by income level of EU-27trade partner in2009........................................................................................122 Figure IV.19: Vertical specialisation of exports by country in1995and2005(%)...........................................................................................125 Figure IV.20: Import content of exports for15EU countries in1995and2005(%)........................................................................................126 Figure IV.21: Outward EU foreign direct investment stock in2007.....................................................................................................................129 Figure IV.22: Inward EU Foreign direct investment stock in2007........................................................................................................................130 Figure IV.23: Share of the inward EU FDI stock owned by EU firms in2007......................................................................................................130 Figure IV.24: EU-27outward FDI stock to the rest of the world/EU-27inward FDI stock from the rest of the world in2007(ratio) .......................................................................................................................................................................131 Figure IV.25: Sectoral share in FDI stock relative to share in value added EU-27in2007...........................................................................132 Figure IV.26: Share of foreignowned patents in EU-27patent applications1990-2007(%)......................................................................133 Figure IV.27: Share of foreignowned patents in EU manufacturing industries2003-07(%). ....................................................................134 Figure IV.28: Share of overseas patents of total patents applications1991-95and2003-07(%)..............................................................134 Figure IV.29: Location of overseas patents applied by the EU-27at EPO1990-2006(%).............................................................................135
Table of Contents
List ofTables
Table I.1: Descriptive statistics of the growth rates of EU, US and Japanese manufacturing industry production......................16 Table I.2: Table I.3: Growth and volatility in EU-27manufacturing industries1990-2011(%)...................................................................................22 Recent developments in EU manufacturing, mining, electricity and construction..............................................................26 prices relative to the same month of the previous year...................................................................................................................30 Table II.1: Table II.2: Table II.3: Table II.4: Table II.5: Table II.6: Share in GDP in2009and change in shares of GDP between1997and2009.........................................................................37 Sectoral specialisation indices1997and2009.....................................................................................................................................43 Share of industry by labour skill in1997and2007(%)......................................................................................................................46 Country specialisation by labour skill in1997and2007..................................................................................................................47 Share of industry by technology categories in1997and2007(%)..............................................................................................49 Country specialisation by technology categories in1997and2007...........................................................................................49 to shocks in the motor vehicles industry...............................................................................................................................................54 Table III.1: Table III.2: EU labour productivity growth2000-2009(%). Production per hours worked......................................................................65 EU ULC annual growth in mining and manufacturing industries in2000-2010(%)...............................................................68 from2000to2010 . ........................................................................................................................................................................................71 Table III.4: Table III.5: Table III.6: Table III.7: Table IV.2: Table IV.3: Table IV.4: Table IV.5: Table IV.6: Table IV.7: Table IV.8: Table IV.9: Table IV.10: Table IV.11: Table IV.12: Table IV.14: Table IV.15: Table IV.16: Table A.1.1: Table A.1.2: Table A.1.3: Table A.1.4: Table A.1.5: EU-22investment ratios in2005-2009.................................................................................................................................................... 74 EU investment intensity. Average2005-07. ...........................................................................................................................................76 EU energy intensity. Average2005-07....................................................................................................................................................77 Growth in investment levels, average annual growth rates:1997-2009(%).............................................................................92 Manufactured products world trade matrix, export destination in2009(%)....................................................................97 Manufactured products world import structures by origin of imports in2009(%)........................................................98 EU exports of manufactured goods in2009by destination (%).................................................................................................101 EU imports of manufactured goods by origin (2009in%).............................................................................................................102 Share of EU and main trade partners in world markets by sectors in2009........................................................................... 104 EU RTB indicators in manufacturing sectors from2007to2009................................................................................................ 105 RCA in manufacturing in2009: EU countries, US, Japan and Brazil, China and Russia...................................................... 108 RCA in services activities in2009: EU countries, US, Japan and Brazil, China and Russia..................................................115 Manufactured products - World trade matrix, income level: exports in2009(%)...............................................................120 Manufactured products - World trade matrix income level: destination of exports in2009(%)...................................120 Manufactured products - World trade matrix income level: import destination in2009(%)....................................121 Indicators of RCA for manufactured goods in2000and2009.....................................................................................................127 Indicators of RCA for intermediate goods according to technological intensity in2009.................................................128 Export and import unit values of intermediates according to technological intensity in2009.....................................128 Sectoral nomenclature for economic activities NACE rev1.1.................................................................................................137 Sectoral nomenclature for economic activities NACE rev2....................................................................................................139 Sectoral nomenclature for consumption activities (COICOP)......................................................................................................141 Sectoral nomenclature for trade in services activities....................................................................................................................142 Classification of products by activities (CPA)......................................................................................................................................143
Table I.4: EU services production, recent developments. Growth in services turnover in constant
Table II.7: Percentage responses of employment and productivity in four manufacturing industries
Table III.3: EU manufacturing employment and hours worked average annual growth
Manufactured products export world trade matrix in2009. Shares of total world exports (%).................................96 Table IV.1:
Table IV.13: RCA by technology category in2009: EU countries, US, Japan and Brazil, China, India and Russia..............................123
Executive summary
The impact of the latest crisis on EU sectors was much stronger than previous ones since1990. The sectoral impact of the latest financial crisis is more significant because of the larger size and scope of the downturn. The latest recession lasted17months before industrial production began to pick up. In comparison, the 1992-93 recession lasted 19 months before production recovered from the trough; the millennium recession13months. Nonetheless, growth rates fell much more drastically in the recent crisis than in the1992-93and millennium downturns. It is still too early to determine how long it will take to reach precrisis production levels. But it is clear that the latest recession was much deeper than the previous ones. Manufacturing production in the EU-27took some two and ahalf years to regain its prerecession production level after the1992-93crisis. The millennium recession was milder but the recovery process lasted longer, about four and ahalf years. Judging from the latest available data, it may take more than four years before the prerecession peak is regained. Looking more closely at the sectoral impact of the crisis, the total number of affected industries is unprecedented in comparison with previous downturns since 1990. The impact has been uneven across sectors. Capital goods, durable goods and intermediate goods were hit harder than nondurable consumer goods. The fall in production for total industry was significantly larger than for services. Services sectors have been generally less sensitive to the crisis, displaying higher growth rates and lower volatility. In early2011, production levels for nondurable consumer goods industries were close to the prerecession peak while durables and intermediates still were well below the prerecession levels. At amore disaggregated level, the industries producing motor vehicles, basic metals and
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machinery n.e.c. experienced larger declines in production than other manufacturing industries. The trough of the crisis can be identified as early2009in most industries in the EU, the US and Japan. The first signs of recovery seemed to have appeared in the beginning of2011. Early2011business survey data (order book levels, stocks of finished products), indicated increasing growth across manufacturing. Nonetheless, growth in some EU sectors still seemed more fragile in early 2011, namely furniture, mining and quarrying and tobacco. The latest developments during the summer of2011have increased the uncertainty of how sustainable the recovery process is. Increasing uncertainty about the sustainability of public finances which deteriorated during the recession may give rise to wealth effects and reduce consumption and investments. Measures to tackle public debt problems in the US and several Member States risk affecting directly and negatively consumption and investment as well. The latest available data (June and July2011) on shortterm statistics shows adecrease in EU-27industrial production. Business surveys on production expectations, orders and inventories point in the same direction. It is still too early to judge whether the latest developments indicate aslowdown or if the economic activity will pick up again.
The developing services economy

Services sectors occupy increasingly larger shares in the EU Member states. Market services have grown to50% of the EU economy in2009, from46% in1997; nonmarket services have risen to24% from22%. Over the same time period, the share of EU manufacturing dropped from20% to15%. Ashrinking EU agricultural sector went down to as little as2% of the EU value added in2009from3% in1997. With the exception of Malta, all EU countries have seen the share of market services activities increase since1997. But these EUwide developments hide large differences among
Executive summary
countries. Luxembourg stands out with avery large services sector along with Cyprus, Latvia and the UK. Conversely, Czech Republic, Hungary, Ireland and Romania still have relatively large manufacturing sectors. In Romania, Slovakia and Spain, the share of the construction sector exceeds by far the EU average of6%. Changes do not only take place between industries. Technological development, increased globalisation and more competition force firms and industries to adapt their business models. Some of these changes within industries increasingly blur the distinction between manufacturing and services activities. An increasing number of manufacturing firms offer services along with their traditional physical goods. This convergence process between manufacturing and services takes place on aglobal scale. Services as shares of total manufacturing output have increased in almost all EU economies. Larger countries tend to have more potential for diversification as their larger markets can harbour more industries than small ones. The most diversified are, naturally, France, Germany, Italy, Spain, and the UK. But smaller countries like Austria, Belgium, the Netherlands, and Sweden also exhibit diversified industrial structures. Natural resources, relative factor endowments of labour, human capital, and physical capital largely explain specialisation patterns. Baltic countries, for instance, are very highly specialised in wood. Cyprus, Ireland, Luxembourg and the UK and have focused most on financial intermediation. The industrial structure of an economy, i.e. the shares of the various sectors, is the result of long term changes. Changes tend to be slow. Acountry dominated by low technology and low skills will not, overnight, move to purely high technology and high skill industries. Nonetheless, it is found that the transition is quite remarkable in certain cases. Finland, for instance, became the country with the highest EU specialisation in high technology industries in only a decade (1997-2007); this is to a high extent explained by the increasing predominance of Nokia. Latvia, from1997to2007made aremarkable shift, compared to other EU countries, towards ahigher specialisation in higher skilled industries. sectors does not mean that manufacturing industries have become less important. From a longterm perspective, manufacturing sectors have remained among the most productive in the EU economy. Labour productivity growth per person employed in industrial sectors, from1995to2010, was higher than in the most productive services activities, such as wholesale, retail and financial intermediation. R&D intensity is one of the factors driving higher labour productivity growth in manufacturing. Among all sectors in the economy, the most R&D intensive in2006were manufacturing: radio, TV and communication equipment, followed by pharmaceuticals, other transport equipment and motor vehicles. As aresult, patenting in manufacturing sectors is also higher, with industries such as office machinery, telecommunication equipment and pharmaceuticals surpassing all others. According to the community innovation survey, these sectors also exhibited relatively high shares of innovative enterprises of all enterprises in2008. Manufacturing sectors also have the highest multiplier effects; interlinkages can generate positive, but also negative, changes in terms of production or employment in other sectors. Acase study on the German automotive sector illustrates this phenomenon. It analyses how the demand for motor vehicles had an impact on other industries and whether this impact is sustained. Firms, sectors or economies try to increase their competitiveness by lowering costs, increasing productivity and innovation. In the aftermath of the latest crisis, EU manufacturing has managed to reduce labour costs and increase productivity.
The EU plays acentral role in trade of high value added goods and services
The EU, Asia and North America account for about84% of total world export flows in 2009. Trade among EU countries (i.e. single market trade) represented more than aquarter of world trade of manufactured goods in2009. In comparison, intraregional trade in Asia and North America accounted for15% and4% respectively of world trade with manufactured goods. World trade flows mostly take place among developed countries. Most high income countries trade takes place with other high income countries. In all manufacturing
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The role and importance of the EU manufacturing sector

The crisis has impacted on the growth potential of EU manufacturing sectors. Nonetheless, large drops in shares of value added and employment in manufacturing

sectors except textiles, paper, machinery n.e.c, electrical equipment and basic metals, half or more of EU-27exports are destined for high income countries. Part of international trade consists of crossborder flows of products of different industries (interindustry trade) reflecting relative different factor (labour and capital) endowments and technology. Countries which are relatively endowed with capital tend to trade capital intensive goods in exchange for labour intensive goods from countries which are relatively well endowed with labour: for example, pharmaceuticals for textiles or motor cars for food. However, there is a high share of exchange of similar goods between countries, with comparable levels of income. High income countries tend for example to trade different brands of cars with each other and low income countries different types of clothes for each other. This intraindustry trade (IIT) is explained by factors such as economies of scale and demand for differentiated products, rather than by relative factor endowments. As demand for differentiated products, and varieties of different qualities, tend to rise with income, per capita incomes of countries play an important role in determining trade patterns. Almost54% of world trade occurs between countries in the groups composed of the EU-27and other highincome countries. If uppermedium countries are included, this share rises to70%. China stands out in the group of BRIC countries (Brazil, Russia, India, China). More than 40 % of EU imports in furniture, leather and footwear, clothing, electrical equipment, nonmetallic mineral products, and metal products come from China. Brazil captures14% and12% of EU imports of paper and food products. Competitiveness on world markets is measured by indices of revealed comparative advantages. The measurements of revealed comparative advantages for manufacturing in2009show that the EU-27had comparative advantages in industries such as printing, beverages, tobacco products, motor vehicles and pharmaceuticals. In contrast, the EU-27 did not have any comparative advantages in the production of computers, electronic and optical products, textiles, other manufacturing, clothing and refined petroleum. The measure of revealed comparative advantages has some weaknesses which should be taken into account. It is sensitive for the level of sectoral aggregation, which may mask differing performance in various categories of goods within the same group of products. This is particularly relevant for industries which
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have alarge variety of brands and quality levels for the same type of goods. Another consideration is country heterogeneity within the EU, as the performance of the EU as awhole is explained in some cases by the performance of afew EU countries. Finally, the weight of each sector and country in the export structure of the EU should be borne in mind to get to abalanced assessment of the EUs sectoral performance in external trade. Analysing comparative advantages for individual Member States reveals that many EU countries, in 2009, have comparative advantages in the production of wood and wood products. The high revealed comparative advantages for Austria, Estonia, Finland, Latvia and Portugal are in line with the specialisation patterns that could be observed in the analyses of industrial structure. Belgium, Cyprus and Ireland appear to have comparative advantages in basic pharmaceutical products. Bulgaria, Greece, Portugal and Romania have comparative advantages in clothing and Italy, Portugal and Romania have comparative advantages in leather and footwear. US manufacturing industries have comparative advantages in chemicals, pharmaceuticals, machinery and other manufacturing goods. Japanese manufacturing industries have comparative advantages in motor vehicles, other transport equipment, machinery, computers, electronic and optical products. Analyses of the BRIC countries show that the Brazilian, Indian and Russian manufacturing industries have comparative advantages in the production of labour intensive goods or products which are based on endowments of natural resources. Chinese manufacturing industries display adifferent pattern. It may seem as if China has become one of the most important trade partners in high technology goods but the high comparative advantage of China in this type of trade should be taken with apinch of salt. China exports proportionally more technologyintensive goods, but a large share of the content is imported from developed countries. As confirmed by data on trade in intermediate goods, China is still more an assembler than aproducer of high technology goods. While the Chinese import of intermediate goods consists of high quality goods, their exports seem to be of alower quality. The analyses of trade in service show that the EU, in2009, has comparative advantages in almost all sectors except personal, cultural and recreational, construction services and travel.1 Cyprus, Luxembourg and the UK has comparative advantages in financial services.
1
See Chapter IV for adefinition of these types of services.
Executive summary
Ireland also has ahigh RCA in computer and information services, together with Finland. US service industries have comparative advantage in financial services and in trade with personal, cultural and recreational services. Japanese service industries have comparative advantages in construction services, as do China and Russia. India is highly specialised in computer and information services. China differs from India in this respect. While China has strong comparative advantages in manufacturing radios, televisions and telecommunication equipment, it does not have any advantage in the services related to those manufacturing goods. Brazil has comparative advantages in other business services. intermediation, real estate and business activities represent almost two thirds of the overall outward EU FDI stock and more than two thirds of the inward EU stock of foreign direct investment Globalisation also has an impact on corporate research, development and innovation (R&D&I). Internationalisation of R&D has increased considerably in the EU. The share of foreign owned patent applications in the EU increased from some10% in1990to17% in2007. The largest increase has been recorded by intraEU patent applications. The most internationalised manufacturing industries in terms of foreignowned patents in the EU-27are manufacture of radio, TV and communication equipment, food and drink, office machinery and chemicals. Outward patenting and R&D outside the own country is still relatively modest. On average, only10% of all EU-27patents were granted abroad between 2003and2007 at the same level as US patents while BRIC countries had alarger share of outward patenting. The US is the most important location for EU outward R&D. The US accounts for60% of overseas patents applied by EU entities at the EPO. The BRIC share is still small but rising fast and is now larger than the Japanese share of EU outward patenting.
Increased internationalisation of EU industries

The globalisation of economic activity shows itself not only in increased trade but also in increased foreign direct investment (FDI) which has displayed higher growth than trade for at least the last 15 years. The stocks of both inward and outward EU FDI are concentrated in the financial and real estate sectors. In absolute terms, financial
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Overview
This publication aims to satisfy the increasing need for analysis of the competitiveness of the EU economy from asectoral perspective. Analyses of this kind provide evidence of the industrial structure in the different Member States, differences in performance of different sectors within the EU, and differences in sector performance across Member States. They yield insight into the competitiveness of different sectors and how they are affected by business fluctuations. The EU industrial structure is one of the few publications that present this view. Together with the publications of Eurostat, 2 it is unique in this respect. Throughout the publication, the term sectors is used interchangeably with industries unless otherwise specified. This publication can be used by economists and policy makers in the EU and Member States or anyone outside the EU interested in the structure and performance of EU industries. Academics, journalists, organisations and citizens who are interested in different aspects of the EU economy from a sectoral perspective may also find useful information in this publication. are based on data that were available at the time of the drafting of the report. Chapter II analyses the industrial structure of the EU. The focus is on the sectoral structure and specialisation. Some of the analyses use sectoral taxonomies to aid comparison between sectors and countries with respect to, for example, the technology intensity of sectors. The chapter also provides abreakdown of enterprises in size categories in terms of value added. The last section of the chapter consists of case studies analysing sectoral interrelations over time. Chapter III aims to analyse industrial growth and competitiveness within the EU from different perspectives. Assessments of competitiveness are made from labour productivity and unit labour costs developments in the EU. The use of growth factors labour, human capital, investments, and technology in the sectors is analysed using indicators. Also, some results in terms of innovation are presented. The last section of chapter III analyses developments on the demand side, with special attention to product composition and developments in private consumption and investments. The analyses in chapter IV are devoted to the external competitiveness of EU industry. Aset of indicators are presented aiming to show the performances of EU manufacturing and services. Along with indicators of export shares in world markets, relative trade balance, revealed comparative advantage (RCA) and intraindustry trade (IIT), foreign direct investments is presented as an indicator of the international movement of factors, and patent data as indicators of the internationalisation of R&D. The chapter also contains asection presenting indicators showing the importance of trade in intermediate products in different respects. These indicators aim to offer insight into the significance of global value chains for EU sectors. Finally, Annex A1presents the statistical nomenclatures used in the report and includes the abridged names of the categories used in throughout. The analyses of industrial structure and economic developments are based on aset of indicators. The use of
Chapter I contain analyses of short run fluctuations impacting on EU sectors. The impacts of the latest recession are compared across sectors. The latest recession is compared to the previous two, since1990, in terms of size, duration and diffusion of the crisis. As most industries seem to have moved out from the trough of the recession, the recovery process is also compared across sectors. It should be noted that since the analyses in the chapter are based on short term indicators; the results
2
See for example Eurostatistics. Data for short term economic analysis. and European Business: Facts and figures.
12
Overview
indicators for sectors varies depending on the availability of data for different sectors and countries; data availability determines the level of aggregation on which sectors are analysed. Availability also restricts some sectors and indicators to being analysed only on aquarterly basis, while others can be analysed monthly. This mainly affects services sectors which, to a lesser extent than manufacturing, can be analysed with the aid of monthly indicators. The update of the statistical classification to NACE Rev.2has had consequences for this publication. The introduction of NACE2has brought about changes in the way data are collected, grouped and reported. Not all data has been revised backwards in time, which affects the possibility to analyse developments over time for sectors according to NACE2. This has placed some limitations on the analyses. The focus of the analyses and descriptions in this publication is market economy sectors: all sectors from mining to market services are included. When considered necessary, the whole economy, including primary services and nonmarket services, are analysed. The data do not always allow for comparison of the same set of indicators for sectors at the same level of aggregation. This is aconsequence of variation in detail between different sectors such as manufacturing and services and also between different topics such as trade and R&D.
13
ChapterI
The aftermath of the crisis along and uneven recovery(?)
The purpose of this chapter is to describe and analyse shortterm developments in EU industries. 3 The analyses in the other chapters are more focused on longterm developments and refer to conditions of amore structural nature. The structure of EU manufacturing and services industries changes slowly over time and the analyses in the following chapters only partly reflect recent fluctuations caused by the financial crisis.4 This chapter focuses on the most recent developments in 2009and2010, which are analysed with the aid of monthly indicators of production and turnover to measure growth in manufacturing and services industries. Also, information on new orders and business surveys results are used to assess future developments. Indicators for services measuring developments in real terms are however only available on aquarterly basis. Afew words on the statistical nomenclatures for sectors which are used in this chapter are in order here. The presentation of monthly indicators of production and new orders is based on the nomenclature NACE Rev. 2. The information provided by the business surveys is based on NACE Rev.1. Data on services activities are not available to the same extent as data on manufacturing activities.
DG Enterprise and Industry is regularly updating a monthly note, which quantifies and analyses the economic recovery in manufacturing, construction and services industries. http:// ec.europa.eu/enterprise/policies/industrialcompetitiveness/ documents/index_en.htm#monthly_notes 4 This is also aconsequence of alag in the collection of annual data, which is mostly used in those chapters. Annual data on valueadded and employment are available with atime lag of several months Most of the annual data available when drafting this report referred to2008when the effect of the financial crisis had not manifested itself in the statistics.
3
Analyses of services industries, therefore, require data of adifferent kind and from different sources. Box I.1. discusses data issues concerning the service industry analyses.
I.1 Recession and recovery(?)

This section examines the impacts of the last recession in terms of its effects on growth rates and cyclical fluctuations. Even though the focus is on shortterm developments, the dramatic falls in production that occurred during arelatively short period of time may have had adverse effects on the EU economys growth and level of output in the longterm. The last crisis can affect longterm growth and output in at least three ways: through employment, investments and technology. 5 Analyses of shortterm developments can provide insights for future longterm growth. The effects of the recession were felt on aglobal scale. The next section begins with a comparison of EU-27 manufacturing growth rates and cyclical fluctuations with US and Japanese manufacturing growth rates and cyclical fluctuations. The latest recession was the most severe recession for along period of time. Its effects on industrial production and employment were much harder than previous recessions during since1990. The latest recession is compared with the two previous since1990. The comparisons are made in terms of sizes and durations of the recessions. The analyses thereafter
5
For a more detailed discussion see Directorate General for Economic Affairs (2009. ECFIN Economic Brief, Issue32009.
15

focus on how the recession has affected EU-27manufacturing and services industries. The latest recession did not affect all industries in the same way: some industries are more sensitive to cyclical fluctuations and were therefore hit harder. The impact of the recession on different EU industries will be analysed in terms of size, duration and diffusion. considerably more variable than those of the EU and US. The greater volatility of Japanese growth rates is probably due to a high specialisation in capital goods which are more sensitive to business fluctuations. The fall in Japanese manufacturing production was significantly larger than for the EU and the US. Following the trough in early 2009, Japanese manufacturing went through an impressive recovery in2010. The sharp decline in the first half of2011can to alarge extent be explained by the impacts of the earthquake.6 Judging from the latest available data, growth rates seem to return to average levels, cf. Figure I.1.
I.1.1 Manufacturing recession and recovery(?)

Manufacturing growth rates in the EU, Japan and the US are presented below. The Japanese growth rate is
Figure I.1: Growth rates (T/T-12) in manufacturing in the EU, Japan and the US from1990 to June2011(monthly data)
40 30 20 10 0 -10 -20 -30 -40 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 EU growth Japan growth US growth
Source: own calculations using Eurostat data.
Japanese industrial production fluctuates much more than the EU and US industrial production: peaks are higher
and troughs are lower. US industrial production grows on average faster than in the EU and Japan, cf. Table I.1.
Table I.1: Descriptive statistics of the growth rates of EU, US and Japanese manufacturing industry production
Mean
EU growth Japan growth US growth Source: own calculations using Eurostat data. 1.26 0.01 2.19
Standard deviation
5.11 8.50 5.24
Max
9.23 33.38 10.27
Min
-19.75 -35.24 -17.64
The full extent of the impact of the earthquake in Japan on Japanese manufacturing is not known at the time of drafting.
16
ChapterI The aftermath of the crisis along and uneven recovery(?)
The impact of the last downturn in the EU was unprecedented in size but did not last longer when compared to two other large recessions since1990.7 The1992-93recession
lasted 19 months and the millennium recession only13months. The latest recession lasted17months before industrial production began to pick up again, cf. Figure I.2.
Figure I.2:
120
Downturns and recoveries in EU-27industrial production since1990

1 EU Manufacturing 0.9 0.8 0.7 0.6
115 110 105 100
0.5 95 0.4 90 85 80 75 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 0.3 0.2 0.1 0
The size of the effects of the financial crisis for EU-27 manufacturing was larger than the previous recessions since1990. This is illustrated below where EU manufacturing growth between1991and June2011has been plotted with the mean of growth and the mean plus and minus the standard deviation of the growth. While
the downturns in 1992-93 and in the beginning of the millennium caused growth rates below the mean minus one standard deviation, the financial crisis caused growth rates to fall significantly below the mean minus two standard deviations, cf. Figure I.3.
It did not last longer in the sense that the number of months with falling industrial production relative to the previous month was not greater than for the1992-93recession. Another measure of the duration would be the number of months with decreasing12-month growth rates. Measuring the duration of the recession this way yields18months of falling12-month growth rates for both the1992-93and the latest recession.
17
EU industrial structure 2011 Trends and Performance Figure I.3:

15 10 5 0 -5 -10 -15 -20 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
EU Manufacturing growth rates (T/T-12) from1991to2010(monthly data)
Mean - 2stdev Mean + 2stdev Mean - stdev Mean + stdev Mean Growth
Figure I.2 showed that the latest recession was not significantly longer than previous recessions since the1990. This conclusion was made on the basis of the number of months with negative growth rates. Below, the analysis will focus on the duration of recovery, i.e, the number of months it takes manufacturing production to reach the prerecession peak. The latest recession is compared with the two previous since1990. The size of the recession is measured as percentage deviations from the peak preceding the recession. While it is still too early to determine how long it will take to regain the peak of January2008, it is clear that the latest recession was much deeper than the previous ones since1990. Following the1992-93recession it took some two and ahalf years for EU-27manufacturing industrial production to regain its prerecession production level. The trough of industrial production was seven percent lower than the peak in February1992. The recession during the millennium was milder but the recovery lasted longer: the prerecession level of industrial production was not reached again for four and ahalf years. Judging from the latest available data, it may take four years before the prerecession peak is regained.
Comparing the growth rates during the recoveries of the last three recessions it seems that they are higher the deeper the trough during recessions. The trough in the1992-93recession was lower than in the millennium recession. Growth after the trough was significantly higher following the1992-93recession compared to the millennium recession. This seems to be the case also for the latest recession as the pace of recovery after it is higher than after the two previous. Nonetheless, the current recovery is likely to last longer than the previous since1990, cf.FigureI.4.8
The choice of number of months for the comparison of posttrough growth rates is determined by the number of months it took manufacturing production to regain prepeak recession level after the trough during the1992-93recession.
18
Figure I.4: EU-27recessions and recoveries in the last two decades. Percentage deviations from peak and months of recovery for EU-27manufacturing production
5 0 -5 -10 -15 -20 -25 The nancial crisis The millenium recession The 1992-1993 recession 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 Months
The impacts of the latest recession varied across manufacturing industries. The different manufacturing aggregates are compared below with respect to the size and duration of the latest recession. The mildest effect was felt in the industries producing nondurable consumer goods while industries producing durable consumer goods were hit much harder. Capital goods and intermediate
Percent
goods suffered most, with production losses of26% relative to the prerecession peak levels, while the total consumer goods and nondurable consumer goods faired relatively well with production losses amounting to between65% and7% at the troughs. Production levels for industries producing nondurable consumer goods are close to the prerecession peak cf. Figure I.5.9
Figure I.5: Capital, Durable and Intermediate goods were most heavily hit during the latest recession
5 0 -5 -10 Percent -15 -20 -25 -30
Non-durables Intermediates Durables Consumer Capital 0 2 4 6 8 10 12 14 16 18 20 Months 22 24 26 28 30 32 34 36 38 40

9
In order to facilitate comparison of the duration of the recession for the different manufacturing aggregates, the peak levels for all subsectors in figure II.3have been set to the peak level for capital and intermediate goods which occurred in January2008. In reality, the decline for durable consumer goods began in August2007while the peak for nondurable consumer goods and total consumer goods occurred in October2007.
19

The largest decline occurred in the motor vehicle industries, where output fell by45% from peak to trough during the crisis. The industry recovered relatively fast and the trough was reached after only10months. Other industries also hit relatively hard, and which recovered relatively fast, were basic metals and machinery n.e.c. industries. Industries producing nondurable consumer goods were not hit as hard, even though the decline in output in some cases lasted quite some time. Some industries, such as tobacco, textiles and clothing, have been in decline for quite some time and experience adownward trend. Production in the pharmaceuticals industry was hardly affected. Production only fell by2% from February to March2008. Production of pharmaceuticals thereafter continued to increase and the prerecession peak was surpassed in August the same year, cf. Figure I.6.10
Figure I.6: Decline in output from Peak to Trough (%) and number of months of falling output for EU-27industries during the latest crisis11
50 40 30 20 10 0 Other manufacturing Consumer goods Machinery n.e.c. Manufacturing Mining and quarrying Coke and re ned petroleum Printing and publishing Motor vehicles Non-metallic minerals Capital goods Rubber and plastics Fabricated metal Electrical equipment Intermediate goods Other transport Repair and installation Non-durables Furniture Paper Basic metals Computers Construction Beverages Textiles Wood Leather Chemicals Clothing Food Pharmaceuticals Tobacco Durables P-T Months
Note: Decline in output and number of months are both measured on the left axis. The calculations have been made for data between January2008and December2010. Some industries have been in decline for along time and the calculation of decline between peak and trough has not taken this into account. Source: own calculations using Eurostat data.
The analyses so far concern the size and duration of the crisis. The analyses below focus on the diffusion of the crisis and recovery across EU manufacturing industries.12 The diffusion of the financial crisis is illustrated by the percentage of manufacturing industries which, each month, exhibit very low growth rates. Very low growth rates are defined as growth rates lower than average growth rates minus two standard deviations before the latest financial crisis.1375% of manufacturing industries
displayed very low growth rates in March 2009. More than half of the manufacturing industries experienced very low growth rates between November 2008 and September2009.14 The recovery can be seen by the rapid decline of manufacturing industries with very low growth rates at the end of 2009 and the beginning of 2010. In June2011, no manufacturing industries had had growth rates below the average minus two standard deviations since January2010, cf. Figure I.7.
The choice of selecting the first and last months is somewhat arbitrary and affects the appearance of the figure. Also production in the food, computers and other manufacturing industries has surpassed prerecession peaks. 11 See the annex to chapter II for agraph illustrating the development of manufacturing output from peaks to troughs in the individual Member States. See also European Commission (2009). Statistics in focus 97/2009. Eurostat. 12 The analysis is performed for twodigit manufacturing industries. 13 See also European Commission (2009). Product Market Review2009. Microeconomic consequences of the crisis and implications for the recovery. European Economy11. Directorate Economic and Financial Affairs. 14 The mean and standard deviations used correspond to the period prior to the2008-2009crisis. For more discussion, see European Commission (2009).
10
20
Figure I.7:
80 70 60 50 40 30 20 10
Percentage of manufacturing industries with very low growth rates in1991-2011
0 1991 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
The previous figures imply that there is agreat deal of variety in growth and cyclical behaviour across the manufacturing industries. The industries are therefore compared using measures of the cyclical fluctuation and monthly growth rates in constant prices between1990and January2011. The effect of the financial crisis in terms of production loss is also compared across manufacturing industries in the table below. The columns below the heading cycle present the maximum, minimum and the cyclical intensity of the cycle components for each industry. Cyclical fluctuations are measured as deviations of actual output from trend output.15 The cycle fluctuation for each industry is compared to the total manufacturing industry by dividing the standard deviation for each industrys cyclical component with the standard deviation for the total manufacturing industrys cyclical component.16 Acyclical intensity around1.0indicates that an industry faces the same cyclical fluctuations as the aggregate manufacturing.
Industries producing repair of machinery, motor vehicles, electrical equipment, machinery n.e.c. and computers, electronic and optical products are subject to larger cyclical fluctuations than other industries. On the lower range of the scale are industries which produce goods which are less sensitive to fluctuations in income, and hence are less sensitive to fluctuations in demand. These industries consist of enterprises producing necessity goods such as the food and beverage industries and also pharmaceutical industries. The columns below the heading growth present the maximum, minimum and average twelve month growth rates. The growth rates are calculated as the monthly growth rates relative to the same month of the previous years. The pharmaceutical industry displays average growth rates which are significantly higher than any other. Also, the industry producing electronic and optical products has relatively high average growth rates. The lowest average growth rates are found in industries producing textiles, leather and footwear, tobacco and clothing.
The gaps and trend output are estimated with the ChristianoFitzgerald bandpass filter, see Christiano, L. J. and Fitzgerald, T. J. (1996). 16 It should be noted that the calculations of the cyclical fluctuations are subject to uncertainty. The uncertainty stems from the fact that trend (or potential) output is not observable and has to be estimated by some method. Thus, cyclical fluctuations, which are measured as deviations of trend output from actual output, are also uncertain.
15
21

The last column presents production loss during the crises. Production loss is calculated as production during the trough relative to production during the peak before the crisis. The largest production losses during the latest crisis were experienced by industries producing motor vehicles and basic metals. These industries are also subject to large fluctuations as indicated by the high cyclical intensities for these industries, cf. Table I.2.
Table I.2: Growth and volatility in EU-27manufacturing industries1990-2011 (%)

Cycle NACE Rev. 2 Codes Industry
Capital Consumer Consumer dur Consumer non dur Intermediate B C C10 C11 C12 C13 C14 C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27 C28 C29 C30 C31 C32 C33 D F F41 F42 Mining and quarrying Manufacturing Food Beverages Tobacco Textiles Clothing Leather and footwear Wood and wood products Paper Printing Refined petroleum Chemicals Pharmaceuticals Rubber & plastics Nonmetallic mineral products Basic metals Metal products Computers, electronic & optical Electrical equipment Machinery n.e.c. Motor vehicles Other transport eq. Furniture Other manufacturing Repair of machinery Electricity & gas Construction Buildings Civil engineering
Growth Cyclical intensity

1.3 0.4 1.1 0.3 1.2 0.7 1.0 0.2 0.5 0.9 1.0 1.0 1.2 1.1 0.7 0.6 0.5 0.9 0.4 1.1 1.1 1.6 1.4 1.6 1.5 1.8 1.8 0.7 0.8 1.0 2.0 0.4 0.7 0.8 0.6
Max.
12.5 3.1 8.7 2.4 10.5 6.2 8.8 1.7 3.8 8.7 6.7 5.8 6.3 8.0 5.7 3.3 4.2 7.4 2.1 9.4 8.6 13.7 12.6 14.5 12.7 16.0 17.1 5.2 6.1 8.8 20.9 3.4 5.1 5.6 3.8
Min.
-15.9 -4.2 -11.1 -3.1 -14.6 -5.6 -11.8 -1.9 -3.3 -6.9 -12.0 -7.6 -9.7 -9.8 -8.1 -5.0 -3.9 -12.1 -4.2 -12.3 -11.8 -21.8 -15.8 -16.0 -17.3 -21.3 -22.9 -4.8 -6.9 -9.5 -19.3 -3.6 -4.2 -5.6 -5.0
Max.
16.2 5.1 9.8 4.7 13.8 17.2 9.2 5.9 15.2 18.5 14.5 11.4 8.3 13.6 10.8 13.5 14.3 17.1 16.8 17.7 13.4 36.2 13.3 23.2 16.5 20.4 34.9 16.7 12.1 10.7 20.0 15.4 10.7 12.2 12.5
Min.
-25.3 -6.7 -20.3 -4.4 -25.7 -16.5 -19.8 -3.4 -9.4 -22.9 -25.3 -17.7 -22.5 -22.1 -15.1 -8.2 -11.2 -22.2 -8.7 -22.0 -24.0 -40.3 -27.9 -19.6 -27.5 -30.6 -44.6 -14.4 -23.3 -21.5 -31.8 -13.1 -13.7 -13.0 -20.2
Average
1.5 0.6 0.0 0.7 1.1 -1.1 1.2 1.3 0.8 -3.5 -2.7 -4.5 -4.0 0.3 1.2 0.3 0.2 1.7 5.1 1.4 -0.2 0.5 0.7 3.4 1.2 1.0 2.8 0.5 0.7 -0.8 -1.1 1.4 0.5 0.8 -0.4
Crisis production loss

-25.3 -6.7 -20.3 -4.4 -25.7 -16.5 -19.8 -3.4 -7.3 -22.9 -25.3 -17.7 -22.5 -22.1 -15.1 -8.2 -11.2 -22.2 -2.7 -22.0 -24.0 -40.3 -27.9 -19.6 -27.5 -30.6 -44.6 -14.4 -9.3 -21.5 -15.3 -13.1 -10.7 -13.0 -18.3
22
I.1.2 Services recession and recovery(?)

Service industries have grown faster and have been exposed to fewer cyclical fluctuations than total industry since1996. Inspection of quarterly data on value added in constant prices over the period confirms that the service sector generally shows higher growth rates and less volatility than total industry.17 Due to limited data availability, the latest crisis can only be compared to the recession at the turn of the millennium. Developments in
both recessions, however, show that the fall in production for total industry was significantly larger than for services.18 In fact, negative growth rates for the service industries did not appear before the latest recession. Data availability only allows for comparison of large aggregates of services industries. Fluctuations for trade, hotels and restaurants are relatively larger than for the other aggregates of service industries. Nonmarket services show considerably less volatility, cf. Figure I.8.
Figure I.8: Growth in EU services industries1996-2011(%)

10
-5
-10 Non-market services Financial intermediation and business services Trade, hotels and restaurants Total industry (excluding construction) 1996 1996Q4 1997Q3 1998Q2 1999 1999Q4 2000Q3 2001Q2 2001Q2 2002 2002Q4 2003Q3 2004Q2 2005 2005Q4 2006Q3 2007Q2 2008 2008Q4 2009Q3 2010Q2 2011
-15
-20
Note: Growth rates in EU services industries and total industry value added in constant prices relative to the same quarter of the previous year in1996:1-2011:1(%). Source: own calculations using Eurostat data.
Below, two groups of market services are compared to GDP. The relatively large sensitivity to fluctuations for the group trade, hotels and restaurants is obvious and fluctuations in production for these service industries are larger than for GDP as awhole. Also the growth in value added for this group of service industries exceeds that of GDP for the period1996-2009.
Growth rates for Financial intermediation and business services are higher and fluctuate less than growth rates for trade, hotels and restaurants. The fall in production was also less than half of that for GDP. The figure indicates that developments in the sector lag behind that of GDP. The decline begins later, the trough appears later and finally the recovery begins aquarter later than the recovery of GDP, cf.Figure I.9.
17
Since there is no data on production in constant prices, value added is used to calculate growth rates for services.
18
Total industry consists of mining and quarrying, manufacturing and industries producing electricity, gas and water.
23
EU industrial structure 2011 Trends and Performance Figure I.9: Growth rates in EU services industries compared to the whole EU economy1996-2010(%)
8
-2
-4 Financial intermediation and business services Trade, hotels and restaurants All branches - Total 1996 1996Q4 1997Q3 1998Q2 1999 1999Q4 2000Q3 2001Q2 2001Q2 2002 2002Q4 2003Q3 2004Q2 2005 2005Q4 2006Q3 2007Q2 2008 2008Q4 2009Q3 2010Q2 2011
-6
-8
Note: Growth rates in EU services industries and total industry value added in constant prices relative to the same quarter of the previous year in1996:1-2011:1(%). Source: own calculations using Eurostat data.
I.2 Sector developments: the current recovery(?)

The previous section has shown the size, duration and diffusion of the latest crisis according to the information that was available at the time of drafting this text. It is not yet possible to have afull assessment of the duration of the recovery since available data show that production has yet to reach precrisis levels. The focus of this section is on more recent developments and the objective is to assess the pace of the recovery, to what extent it has spread across manufacturing and service industries, and also what it implies for future developments. The section begins with an overview of the manufacturing industries, followed by a state of play in services sectors. The two parts are structured in asimilar way. Monthly indicators of production are used for analyses of the most recent developments and an indicator is constructed to assess the intensity of the recovery and the speed of diffusion across industries. Data availability only allows construction of this indicator for manufacturing industries. Developments in the near future are assessed with the aid of information on expectations of future demand. The indicators for manufacturing and services activities are not always similar and comparisons should be made with caution.
I.2.1 Recent developments in manufacturing industries

An indicator which measures how fluctuations spread across manufacturing industries is used to illustrate diffusion. The diffusion index is defined as the difference between the percentage of manufacturing industries that are expanding and of those that are declining. The index ranges from -100to100. Expanding and declining mean positive and negative growth rates respectively. The total number of industries used in the calculations is93(defined in terms of the3-digit level of NACE Rev.2). Expansion is defined as no negative or zero growth. The lowest value of the index, -90.5, corresponds to January2009when only four manufacturing industries displayed positive growth rates. The latest available data show that the recovery process that was on the way in the beginning of2011is fragile. The diffusion index of 14 in June 2011 means that 57 % of manufacturing industries display positive growth rates. It remains to be seen whether this fall of the diffusion index is temporary, cf. Figure I.10.
24
Figure I.10: EU manufacturing diffusion index from January1991to June2011(monthly data)

100 Di usion index 80 60 40 20 0 -20 -40 -60 -80 -100 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
As noted in Figure I.7above, the recovery process, although fragile, seems to be underway in the EU-27manufacturing industries. There are even three manufacturing industries which have reached their precrisis levels; food, pharmaceuticals and other manufacturing. The three manufacturing industries which were hit hardest, motor vehicles, basic metals and machinery n.e.c., have also recorded the largest percentage increases since their troughs. The recovery seems to be fragile in furniture, mining and quarrying and tobacco where very modest increases are recorded only lasting recent months, cf.FigureI.11.19
The most recent development for the EU-27manufacturing industries together with mining, electricity & water and construction, are summarised in the table below. The first four columns present annual average growth rates in 2009and2010, the growth rate in 2010 compared with2009, and the last six months (January to June2011). The fifth column presents, for each industry, the growth since the trough at the crisis; the last column, spread, presents the growth difference in percentage points for each industry relative manufacturing for the last six months.20
20 19
See the annex to chapter II for a graph illustrating the development of manufacturing output since the troughs in the individual Member States.
The spread is the difference between growth of industry i and manufacturing the last six months minus the difference between the average growth difference between industry iand manufacturing for the whole period.
25
EU industrial structure 2011 Trends and Performance Figure I.11: Increase in output from the trough to June2011(%) and number of months of increasing output for EU-27industries since the latest crisis
80 70 60 50 40 30 20 10 0 Construction Other manufacturing Furniture Clothing Durables Consumer goods Non-durables Printing and publishing Beverages Coke and re ned petroleum Repair and installation Non-metallic minerals Mining and quarrying Machinery n.e.c. Rubber and plastics Electrical equipment Intermediate goods Fabricated metal Pharmaceuticals Other transport Manufacturing Computers Motor vehicles Chemicals Capital goods Basic metals Tobacco Paper Leather Textiles Wood Food
Note: Increase in output and number of months are both measured on the left axis. The calculations have been made for data between January2008and March2011. Nin TN stands for now which in this case means latest available data. Source: own calculations using Eurostat data.
Starting with aggregates, consumer goods were not hit as hard by the crisis as capital and intermediate goods. Among consumer goods, nondurable consumer goods such as food and pharmaceuticals have also fared better, confirmed by their lower cyclical intensity shown in Table II.2above. The lowest growth rates in2009were recorded by capital
and intermediate goods, produced in, for example, industries producing machinery n.e.c. and basic metals. Growth rates in industries producing motor vehicles, computers and machinery n.e.c. are particularly high during the last six months, cf. Table I.3.
Table I.3:
NACE Rev. 2
Recent developments in EU manufacturing, mining, electricity and construction

Growth 2009
Capital Consumer Durable consumer Nondurable consumer Intermediate -19.4 -4.3 -15.0 -2.6 -17.6 -10.9 -14.5 -1.0 -2.6
Growth 2010
9.3 3.3 4.5 3.0 9.6 -0.7 7.5 2.2 -1.3
2010/2009
28.7 7.6 19.5 5.6 27.2 10.2 22.0 3.2 1.3
Last six months

11.2 1.8 0.4 2.0 6.5 -7.4 6.5 1.9 2.3
Post trough Spread last growth six months

18.7 5.3 5.3 5.0 18.3 -5.6 13.3 5.3 2.1 4.3 -4.1 -4.9 -4.0 0.2 -11.4 -4.7 -3.9 >>>
B C C10 C11
Mining & quarrying Manufacturing Food Beverages
26
ChapterI The aftermath of the crisis along and uneven recovery(?) NACE Rev. 2
C12 C13 C14 C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27 C28 C29 C30 C31 C32 C33 D F F41 F42 Tobacco Textiles Clothing Leather and footwear Wood Paper Printing Refined petroleum Chemicals Pharmaceuticals Rubber & plastics Non metallic mineral products Basic metals Metal products Computers, electronic & optical Electrical eq. Machinery n.e.c. Motor vehicles Other transport eq. Furniture Other manufacturing Repair of machinery Electricity & gas Construction Buildings Civil engineering
Growth 2009
-2.8 -16.6 -10.8 -12.5 -13.7 -8.9 -7.2 -7.8 -10.4 3.3 -12.8 -18.5 -25.6 -21.8 -15.2 -20.3 -26.1 -21.9 -6.1 -16.3 -5.9 -8.7 -4.9 -8.6 -10.8 2.2
Growth 2010
-6.2 8.4 0.6 3.3 3.8 6.1 1.6 0.1 10.1 5.8 7.9 2.6 19.6 7.4 11.3 11.2 10.5 21.8 -2.7 -0.9 7.9 3.4 4.2 -3.9 -3.2 -7.0
2010/2009
-3.4 25.0 11.3 15.8 17.5 15.0 8.9 7.9 20.5 2.5 20.7 21.1 45.1 29.1 26.5 31.5 36.5 43.7 3.4 15.4 13.7 12.1 9.1 4.7 7.6 -9.3
Last six months

-8.3 1.3 -2.4 7.3 1.7 0.8 1.4 1.5 3.4 3.6 6.5 5.9 8.5 9.1 9.4 8.6 14.9 16.6 2.6 2.6 2.9 3.0 -3.7 -1.3 -1.7 0.9
Post trough Spread last growth six months

-7.5 11.0 3.9 14.1 5.0 8.5 3.8 6.3 19.9 14.2 15.9 6.6 46.2 16.0 23.7 20.7 26.3 62.1 5.8 2.8 9.6 8.7 3.4 4.0 3.5 3.5 -10.0 -1.3 -3.2 5.8 -3.9 -5.6 -4.3 -3.9 -3.6 -6.8 -0.2 0.7 2.7 3.0 0.7 2.1 8.5 8.4 -3.2 -1.9 -3.1 -1.2 -10.2 -7.1 -7.7 -4.0
The remainder of this section aims to assess future developments for the manufacturing industries. The analyses below are undertaken using information on new orders and other leading indicators: orderbook levels, stocks of finished products and production expectations. The discussion will shed light on expectations for the near future and on the extent to which the recovery will be felt across the manufacturing industries in the months to come. Monthly real21 growth rates, relative to the same month of the previous year, of production and new orders for total
21
New orders have been deflated with the corresponding producer price indices for the aggregates.
manufacturing are used in the first step of the assessment of future developments. New orders recorded its lowest level in February 2009. The decline, although modest in the beginning, started in early2007. The recovery of new orders, during the recent recession, preceded the recovery of production with one month. Production growth hit bottom in March2009. Positive growth rates of new orders occurred again in November 2009, two months before production growth rates became positive. Twelvemonth growth rates of new orders and production increased steadily until the second quarter of2010. After having levelled out during the last quarter of2010and the first two months of2011, growth rates are declining again, cf. Figure I.12.
27
EU industrial structure 2011 Trends and Performance Figure I.12: EU-27manufacturing growth rates of production and new orders (T/T-12) for manufacturing goods from January2001to June2011
20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 2001 2002 2003 2004 2005 2006 2007 2008
Manufacturing production Manufacturing new orders
2009
2010
2011
The main aggregates of manufactured goods show similar developments Declines in new orders were particularly dramatic for capital goods, intermediate goods and, to alesser extent, consumer durable goods. The second step in the analyses is carried out with indicators from EU business surveys. 22 Three indicators, assessment of orderbook levels, of stocks of finished products, and expectations of future demand, confirm the picture of recovery and its fragility that has taken place during recent
months. Orderbook levels and production expectation reached their lowest levels in the middle of 2009. These two indicators provide information on developments in production in the near future. Stocks of finished products act as abuffer and allow production to continue at ahigher than actual demand during recessions. Stocks of finished products started to increase in mid-2007and reached its highest level in April2009. The stocks kept declining until April2011but began to rise in May2011. The rise since May mirrors the declines of the other two indicators, cf.FigureI.13.
Figure I.13: EU-27manufacturing orderbooks levels, stocks of finished products and production expectations from January1985to February2011(monthly data)
30 20 10 0 -10 -20 -30 -40 -50 -60 Jan-85 Jan-86 Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 -70 Production expectations for the months ahead Assessment of stocks of nished products Assessment of order-book levels Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
Note: There is abreak in the time series due to achange in the classification of economic activities. Data until April2010are collected according to NACE Rev.1.1. Data from May2010according to NACE Rev.2. 23 Source: Directorate General for Economic and Financial Affairs.
22 23
Directorate General for Economic and Financial Affairs business surveys. The change of classification to NACE Rev.2entails achange in the identification and grouping of similar economic activities in the business surveys. This gave rise to abreak in the time series. Analyses of consequences of the change indicate that the changeover has affected the level but did not, on the whole, affect the direction of the change, only its magnitude. See DG ECFIN, http://ec.europa.eu/economy_finance/ db_indicators/surveys/nace2/index_en.htm for further discussion.23
28
The third step in assessing future developments involves an attempt to predict future developments of EU manufacturing production. The development of EU manufacturing production displays significant changes over time, with some marked breaks in the series. One way to characterise such aseries is to think of it in terms of being in different regimes or states. Two such states can be expansion and contraction. Provided that the economy is in expansion, there is a probability that it will be in contraction the next period. 24 The assessment of future developments is performed by an econometric analysis of the probability of contraction of EU manufacturing production between1990and June2011.25 The three large recessions during the time period were associated with large probabilities of contraction. In the latest recession,
probabilities fell significantly during the end of2009. The probabilities of contraction remain low as manufacturing picks up again after the trough. The assessment also includes aforecast of manufacturing production between July 2011 and June 2012, with the associated probabilities for acontraction during this period of time. The vertical blue line at the right of the figure divides the sample into actual and predicted production. The forecast is based on the latest available data for manufacturing production and manufacturing new orders. 26 According to the forecast, manufacturing production growth slows down in the end of2011but picks up slowly again in the beginning of2012. The probabilities of contraction during the forecast period are rising but still below0.2, cf. Figure I.14.
Figure I.14: Increasing probabilities of contraction in the end of2011

115 Manufacturing production Probability of contraction Forecast 1.0 0.9 0.8 105 0.7 100 0.6 0.5 0.4 0.3 85 0.2 80 0.1 0.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
110
95
90
75
There is ahigh degree of uncertainty associated with the analysis above. The forecast of EU27industrial production and predicted probabilities should therefore not be taken literally. It is very difficult to assess how the developments in the financial markets that occur at the drafting of this report will impact on industrial production. Also other forecasts
If the economy is expanding in the current time period, the probability that the economy will be expanding also in the next time period is p. The probability that the economy instead will be contracting in the next period is then1-p. 25 See Hamilton, J. D. (1989) for adiscussion of the method.
24
and business cycle indicators indicate that economic activity will slow down in the EU. DG ECFINs Economic Sentiment Indicator declined in July2011both for the EU and the Euro area. Also, the Flash Consumer Confidence Indicator declined in July.27
A bivariate VAR model including three lags of growth rates of manufacturing production and new orders is used for the forecast. New orders is deflated by manufacturing producer prices. 27 http://ec.europa.eu/economy_finance/db_indicators/surveys/ index_en.htm
26
29
I.2.2 Recent developments in services industries

The quarterly data presented in section I.1.2 presented highly aggregated service sectors; the analyses below offer more detail on developments in various service sectors for the last months for which data are available. From the last month for which data are available for all sectors, one
can see that only four service industries; water transport, warehousing and support services for transportation, computer services and R&D and technical activities still display negative growth. Wholesale trade have recovered remarkable well and display very high growth rates. Looking at aggregates, total services display positive growth rates for the whole period, cf. Table I.4.
Table I.4: EU services production, recent developments. Growth in services turnover in constant prices relative to the same month of the previous year
NACE2 Codes
G45 G46 G47 I H49 H50 H51 H52 H53 J61 J62 M72 N GN C
2010:08 2010:09 2010:10 2010:11 2010:12 2011:01 2011:02 2011:03
Motor vehicles trade Wholesale trade Retail trade Accommodation & Food Land transport Water transport Air transport Warehousing and support activities for transportation Postal and courier Tele- communications Computer services R&D and technical activities Administrative and support activities Total services Manufacturing
2.1 7.9 1.5 5.0 4.6 -2.1 13.3 0.2 13.2 3.3 -0.4 5.5 1.3 4.6 9.2
0.6 7.2 1.6 4.6 3.7 2.6 15.8 0.6 10.4 2.7 -1.7 4.2 0.4 4.0 7.2
0.5 7.3 1.6 3.1 2.9 3.5 13.9 0.3 8.3 2.5 -1.6 5.2 0.0 3.6 8.3
3.9 6.9 2.8 4.3 3.6 6.9 15.5 -1.1 9.1 2.1 -1.8 0.9 -0.4 4.2 8.4
2.3 5.7 3.2 4.8 3.5 0.6 10.1 -1.1 7.3 2.5 -2.2 1.1 0.3 3.0 9.2
4.6 4.8 4.7 4.1 4.1 -1.3 14.5 0.4 6.7 2.1 -1.9 -1.9 3.7 3.9 8.4
5.2 9.9 5.1 3.5 3.2 2.1 8.9 -1.5 5.5 2.1 -2.0 -1.1 6.4 6.1 9.1
1.8 7.1 5.4 4.0 2.3 -1.7 6.5 -1.7 4.5 1.9 -2.3 -1.8 5.3 4.0 6.2
Box I.1: Data issues in measuring services activities

The closest item in the consumer prices index has been used for each service industry. When such an item is unavailable, the index for all services has been used to deflate the turnover series, as follows. Retail trade is presented in constant prices in the original series. For hotels and restaurants, postal activities, and transport services, the corresponding consumer price indices for these industries have been used. Supporting activities for transportation are deflated by the price index for all transport services. Information and communication and telecommunications are deflated by the price index for communications. All other services industries are deflated by the consumer price index for all services.
30
The business survey indicator used for services industries is calculated as the difference between the percentages of total answers to the survey that consider that demand (turnover) for the firms services will increase in the next quarter and the percentage that consider that it will decrease. The indicator is compared with an indicator for manufacturing. The indicator for manufacturing is defined in the same way, although it applies to production expectations for the next quarter. The results for all
services relative to manufacturing between April1996and July2011are presented below. The balance for services is in general more positive than the balance for manufacturing until November 2009. Demand expectations declined sharply in the second half of2008. The decline continues until March2009where the opinion balance became less negative and in October2009, the balances are positive again and rose sharply until the first quarter of2011after which they have decreased, cf. Figure I.15.
Figure I.15: Production and demand expectations: EU services and manufacturing industries between1996and2011(monthly data)
50 40 30 20 10 0 -10 -20 -30 -40 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10 Apr-11 Services Manufacturing
Note: There is abreak in the time series due to achange in the classification of economic activities. Data until April2010are collected according to NACE Rev.1.1. Data from May2010according to NACE Rev.2. 28 Source: Directorate General for Economic and Financial Affairs business surveys.
28
See footnote14for how the change of classification from NACE Rev.1.1to NACE Rev.2has affected the time series for the variables.
31
I.3 Annex Figures

Figure I.16: Decline by country in manufacturing output from peak to trough (%) and number of months of falling output in EU-27during the latest crisis
40 Months P-T
35
30
25
20
15
10
0
EE BG SK LU FI LV SI HU IT DK ES LT SE DE EL CZ MT IE BE EU27 EU15 FR PT AT PL CY RO NL UK
Note: Decline in output and number of months are both measured on the left axis. The calculations have been made for data between January2008and December2010. Source: own calculations using Eurostat data.
Figure I.17: Recovery by country in manufacturing output from the trough to March2011(%) and number of months of increasing output in EU-27since the latest crisis
60 Months T-N
50
40
30
20
10
0
EE SK LV BE LT DE BG CZ LU PL FI IE HU SE AT SI RO DK EU27 EU15 IT NL MT FR PT UK ES CY EL
Note: Increase in output and number of months are both measured on the left axis. The calculations have been made for data between January2008and March2011. Nin TN stands for now which in this case means latest available data. Source: own calculations using Eurostat data.
32
Chapter II
Changes in EU Industrial structure

The objective of this chapter is to describe the industry structure in the EU as awhole and also in individual EU member states. The description is made in terms of value added and employment for the different sectors. It includes descriptive statistics covering the breakdown of the economies by sectors in Section II.1. Section II.2 then introduces two different taxonomies based on skills and technology. In Section II.3, descriptive statistics on the size distribution of firms, in terms of employees, in the various sectors are introduced. Section II.4contains abrief discussion of the increased tendency of manufacturing firms also to supply services. The chapter ends with an analysis of how developments in one sector spill over to other sectors in the economy, Section II.5. aggregation imply that some sectors will be only partially, or not at all, recognisable in this report, either because no data are available at detailed level or because the statistical classification does not reflect the reality of the sector. One example is manufacture of computers, electronic and optical products, for which some data are not available for manufacturing of optical products and manufacturing of computers separately. Other cases are economic activities which encompass manufacturing and repair activities under the same heading. Examples of these are building and repairing of ships and boats and manufacturing of aircraft and spacecraft. While NACE Rev.2brought ahigher level of disaggregation in certain sectors compared to NACE Rev.1, many economic activities cannot be split into detail. This means that different trends and performances of subsectors are hidden behind larger aggregates.
II.1 The shares of industries and sectoral specialisation in the EU

The industrial structure of the economy is the result of longterm trends in sectoral growth where each sectors share of employment and value added is determined by productivity growth, the structure of demand and international trade. Chapter III analyses the growth of sectors from alongterm perspective and Chapter I focuses on the most recent developments. This section outlines the distribution across sectors of total value added in the EU. This approach reflects the relative importance of the industries and provides abasis for analysing the specialisation of Member States. The sectors analysed in this report are determined by the statistical nomenclatures used, by the different levels of aggregation chosen for the analysis, and by the availability of data. Analyses of industrial structure at acertain level of
II.1.1 Structural change in the EU

The EU industrial structure develops according to the longterm trend of an increased services sector at the expense of the manufacturing sector. Market services have grown to represent50% of the EU economy in2009from46% of EU GDP in1997. The share of nonmarket services also increased from22% in1996to reach24% in2009. Construction, as well as mining and quarrying, roughly remained stable at6% and1% respectively. The shares of manufacturing decreased from20% to15% between1997and2009while the shares of agriculture dropped more moderately from and3% to2%. Market services and manufacturing generally evolved in opposite directions: the former increased its overall share by 4 percentage points while the latter lost symmetrically5percentage points, cf. Figure II.1.
35
EU industrial structure 2011 Trends and Performance Figure II.1: EU Structural change1997-2009(% of GDP)
60 2009 1997 50
40
30
20
10
Agriculture forestry and shing
Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Market services
Non-market services
Source: own calculation using Eurostat data.
The overall EU trends observed in Figure II.1 hide large variations among member states, with very different patterns of industry structure. Luxembourg stands out as the country with avery large market services sector and avery small manufacturing sector. Cyprus, Latvia and the UK also have large market services sectors. Conversely, the Czech Republic, Hungary, Ireland and Romania have small market services sectors but relatively large manufacturing sectors.
The latter are examples of countries that have received considerable foreign direct investment in manufacturing in the period under consideration. Hence, it is not necessarily the case that there is any catchup pending in services in the shortterm. In terms of future growth, it is likely that services will increase in weight and presumably lower growth rates because of the lower productivity growth of services relative to manufacturing, cf. Figure II.2.
Figure II.2: Distribution of EU countries by GDP shares of manufacturing and market services in2009
75 70 65 60 55 50 45 40 35 5 CY LV GR FR NL UK LU
BE EU27 PT
IT LT SE PL BG FI SK AT SI HU RO CZ DE IE
EE MT ES DK
10
15
20
25
36
Chapter II Changes in EU Industrial structure
While there is some variety in the overall industrial structure, common trends emerge. Market services shares have grown by an average of3.8percentage points from 1997to2009 while manufacturing and agricultural activities shares are diminishing in almost all countries. With the exception of Malta, all countries have seen their share of market services activities increase since 1997. The countries where the gains in shares over time of market services were the most spectacular were Bulgaria, Latvia, Lithuania, and Luxembourg, where market services increased by between8.5percentage points and10percentage
points. In Latvia and Luxembourg, these gains were coupled with large drops in shares of manufacturing by between7and10percentage points. The countries that have the lowest shares of market services in the EU are catching up and have all seen robust expansion in market services shares since 1997; increases between3and5.5percentage points were recorded in Czech Republic, Finland, Hungary and Romania. Afew countries, Romania, Slovakia and Spain, stand out as far as the construction sector is concerned. In these countries, the share of the construction sector is around10%, much higher than the EU average of6.3%, cf. Table II.1.
Table II.1:
Sectors Country (Y1-Y2)
AT (97-07) BE (97-09) BG (97-06) CY (97-09) CZ (97-09) DE (97-08) DK (97-09) EE (97-09) ES (97-09) FI (97-09) FR (99-09) GR (00-09) HU (97-09) IE (97-09) IT (97-09) LT (97-09) LU (97-09) LV (97-09) MT (97-09) NL (97-09) PL (97-05) PT (97-07) RO (97-08) SE (97-09) SI (97-09) SK (97-09) UK (97-05) EU-27(97-09)
Share in GDP in2009and change in shares of GDP between1997and200929

Agriculture, fishing and mining change
-0.5 -1.0 -16.8 -1.7 -2.7 -0.4 -1.1 -3.0 -2.6 -1.3 -1.3 -3.6 -3.8 -4.5 -1.6 -7.5 -0.6 -1.5 -0.7 -1.5 -2.7 -2.1 -13.0 -0.6 -2.1 -1.7 -0.7 -1.3
Manufacturing change
0.2 -6.3 0.2 -4.2 -3.7 0.2 -3.8 -5.7 -6.4 -6.6 -5.5 -0.8 -1.5 -6.6 -5.6 -2.2 -6.7 -10.3 -6.6 -3.7 -1.3 -4.3 -3.4 -6.1 -6.3 -3.4 -7.3 -4.9
Electricity, gas and water supply change

0.2 -0.8 -0.4 0.0 1.8 0.3 -0.6 0.8 -0.3 0.3 -0.1 0.4 -0.3 0.2 0.1 -0.3 -0.2 -1.3 0.0 0.7 0.5 0.3 -1.4 0.3 0.8 1.5 0.1 -0.2
Construction change
-0.9 0.5 3.1 0.3 -0.2 -1.9 0.2 0.9 3.7 1.6 1.4 -2.6 0.0 0.0 1.2 -1.1 -0.9 2.4 -0.5 0.7 -1.2 -0.2 6.1 1.0 1.2 2.2 0.7 0.7
Market services change

2.3 4.5 8.9 2.3 3.0 2.2 2.4 3.1 3.5 4.0 4.0 2.1 4.4 7.1 4.3 10.3 9.0 8.6 -1.5 0.2 3.7 4.6 5.4 2.5 4.8 0.2 5.8 3.8
Nonmarket services29 change

-1.4 3.1 6.7 3.4 1.8 -0.4 3.0 3.9 2.1 2.1 1.5 4.6 1.3 3.8 1.5 0.8 -0.6 2.1 9.4 3.5 1.0 1.8 6.3 2.8 1.7 1.2 1.3 1.9
share
2.2 0.8 11.5 2.6 3.4 1.2 3.5 3.9 2.8 3.1 1.9 3.5 3.6 1.5 2.2 3.7 0.4 3.8 2.4 4.7 7.1 3.0 8.6 2.4 2.9 4.5 3.1 2.4
share
20.1 14.0 18.6 6.8 23.6 22.7 13.2 14.3 12.7 18.2 10.6 10.3 21.3 24.2 16.1 16.4 6.5 9.9 13.3 12.6 18.5 14.6 22.4 15.5 19.6 19.6 13.0 14.9
share
2.9 2.2 4.0 2.0 5.7 2.7 1.9 3.9 2.5 2.7 1.6 2.6 3.4 1.6 2.3 3.9 1.2 3.6 2.1 2.3 3.6 3.0 2.3 3.3 3.2 5.5 2.2 2.4
share
7.1 5.4 5.9 8.2 7.4 4.0 4.9 7.0 10.8 7.0 6.4 4.5 4.4 5.6 6.3 6.4 5.3 6.6 3.9 6.0 6.0 6.8 11.9 5.2 7.9 9.5 5.8 6.3
share
47.3 52.2 44.9 54.7 42.5 47.3 46.8 50.2 48.2 44.3 52.7 52.8 44.5 44.4 51.0 48.6 69.9 54.1 47.5 48.5 45.5 48.4 40.0 46.7 45.3 43.5 53.3 49.9
share
20.4 25.4 15.1 25.6 17.6 22.2 29.8 20.8 23.0 24.7 26.7 26.3 22.7 22.8 22.1 21.1 16.7 22.0 30.9 25.9 19.2 24.2 14.8 26.9 21.2 17.4 22.6 24.1
Note: the time period covered varies with countries (as indicated in parentheses). Source: own calculation using Eurostat data.
29
Non-market services are those supplied predominantly by the public sector: codes L to O of NACE Rev. 1.1 (public administration and defence, education; health, social services) and household activities.
37

A narrower breakdown is provided below. 30 The sectors are represented at the2-digit level of the NACE classification. Real estate, renting and business activities stand out as the largest activity, reaching about23% of the total EU economy in2009compared to20% in1997, cf. Figure II.3. of2008-2010. Among these imbalances, the housing bubble stands out as one of the main distortions recorded in that period. Hence, the remarkable increase of the real estate services and construction sectors can be directly attributed to mispriced assets.31 The inflation of these sectors was later partially reversed during the recession; by mid-2011the
Figure II.3: EU industry shares in GDP in1997and2007%

25 2009 1997 20
15
10
0 Electricity, gas and water supply Construction Fishing Mining and quarrying Manufacturing Re ned petroleum products Education Textiles and textile products Leather and leather products Wood and wood products Financial intermediation Health and social work Transport equipment Manufacturing n.e.c. Agriculture, hunting and forestry Machinery and equipment n.e.c. Electrical and optical equipment Paper products; publishing and printing Other non-metallic mineral products Basic metals and fabricated metal products Transport, storage and communication Public administration and defence Food products; beverages and tobacco Real estate, renting and business activities Other social & personal services Wholesale and retail trade Chemicals, chemical products Rubber and plastic products Activities of households Hotels and restaurants
Real estate, renting and business activities is not only the largest sector, it is also the one that increased most, by3.4%. In comparison, while manufacturing had ashare higher than Real estate, renting and business activities in1996, it is also the sector that was most affected by the financial crisis. The manufacturing sector witnessed the largest decline of4.9percentage points from1996to2009. These figures, however, have to be interpreted with care. The period 1997-2007 is also the period that witnessed the accumulation of imbalances that caused the recession
30
correction was still ongoing with the construction sector still contracting. While the raise of the housingrelated sectors can be attributed to growing imbalances, the drop in the share of manufacturing is probably reflecting a wellunderstood longterm trend explained by its high productivity growth relative to services in general. This is interesting because it means that we can rule out trade specialization as the driving force behind the
31
Amore detailed picture is provided by Table II.8in the Appendix, which presents the share of sectors in1997and2009.
This has been discussed in detail in chapter1in the European Competitiveness Report2010. Although anecdotical, figure1.4in European Competitiveness Report2011is quite compelling about the size of the distortions: it shows how the construction sector in Spain ended up employing more workers than in Germany in absolute terms.
38
developments. This is confirmed by the poor relation between the bubble (and growth of the construction sector) and the behaviour of international market shares of manufacturing. 32 In short, the developments reflect the typical landscape of an economy with fast productivity
growth in manufacturing and increasing weight of services with one or two anomalies like the real estate services and construction due to the imbalances accumulated over the period under consideration cf. Figure II.4.33
Figure II.4: Change in the share of sectors in the EU in1997-2009(percentage points)

Real estate, renting and business activities Health and social work Construction Financial intermediation Education Other social & personal services Hotels and restaurants Activities of households Transport, storage and communication Fishing Leather and leather products Re ned petroleum products Wood and wood products Mining and quarrying Manufacturing n.e.c. Electricity, gas and water supply Rubber and plastic products Other non-metallic mineral products Chemicals, chemical products Machinery and equipment n.e.c. Public administration and defence Food products; beverages and tobacco Textiles and textile products Transport equipment Basic metals and fabricated metal products Paper products; publishing and printing Wholesale and retail trade Electrical and optical equipment Agriculture, hunting and forestry Manufacturing
-5
-4
-3
-2
-1
II.1.2 Member states sectoral specialisation

Sectoral specialisation is a concept which adds acomparative dimension to the breakdown by shares that was presented in the previous section. The breakdown
of industries by shares in each country is compared to the average share in the EU and used as an indicator of specialisation. The two indicators, shares and specialisation, complement each other: a country can be specialised in sectors that represent only asmall share of the overall economy, cf. BoxII.1.
33 32
See section1.3in the European Competitiveness Report2010.
Figure II.11in the Appendix breaks down manufacturing and market services into further sectors.
39
Box II.1: Indicator of acountrys sectoral specialisation

The indicator of acountrys sectoral specialisation compares the share of agiven sector in one country with the share of the same sector in the EU as awhole. Avalue of1for asector indicates the same share for that sector in the country and in the EU. Values above (below)1indicate specialisation (lack of specialisation) of the country in that sector and, the higher the value of the indicator, the higher the countrys specialisation compared to the EU average. The index is calculated, for country i and industry j , as follows:
where VA is value added and EU refers to EU-27. When interpreting the coefficient there are at least three caveats. 1) Large countries mostly determine the sectoral profile of the EU, in which they are included. It is, therefore, less likely to find significant differences between large countries and the EU as awhole. For the same reason it is more likely to find asubstantially different profile in small countries from that of the EU. This arithmetic property of the indicator affects the value of the index but not the specialisation profile of the country. However, the2009edition of EU industrial structure (See Figure II.7p. 61) showed that the results are not substantially affected by the method of calculation since changing the area of reference by excluding the country under analysis does not substantially alter those indicators. Nevertheless, other factors, as well as the way the indicator is calculated, explain the fact that small countries tend to show asectoral profile different from the average. Large countries are in anaturally favourable position to initiate alarger number of activities successfully. Conversely, the obvious constraints that prevent small countries from developing alarge range of economic activities lead these countries to specialise on the basis of, among other things, their own comparative advantages, their degree of development, the availability of specific resources, historical reasons, geographical and location advantages, and technical characteristics of the sectors (e.g. economies of scale). 2) The level of sectoral aggregation also affects the results, as aggregation may mask the level of specialisation or lack of specialisation of acountry in agiven sector. This applies to the results presented in Section II.2, as the taxonomies for which the indicator is calculated are the result of aggregating sectors as defined in the NACE Rev. 1nomenclature. 3) Specialisation and size of the sector are not necessarily related. The fact that acountry is specialised in asector does not necessarily imply that the share of this sector in the economy of the country is large.
Degree of specialisation in acountry

While the indicator of sectoral specialisation provides avalue for each sector in agiven country, the degree of specialisation in acountry is measured as the Euclidean distance between the countrys vector of specialisation and the vector corresponding to the nonspecialisation hypothetical case of nonspecialisation in which the coefficient of specialisation would take the value1for each sector. For country i and n sectors the coefficient that measures the degree of specialisation is calculated as follows.
40
Looking at the overall specialisation of a country, the countries with the most specialised industrial structures are,
presented in decreasing order, Hungary, Bulgaria, Estonia, Ireland, Romania, Latvia and Greece, cf. Figure II.5.
Figure II.5: Ranking of countries by degree of specialisation

HU BG EE BG RO LV GR PT LU LT MT SK CZ CY IT DK NL PL DE FI ES SI BE UK SE AT FR
10
The larger the country is, the higher is its potential for diversification. The sectors that drive this high specialisation can be deduced from Table II.2. The five countries most diversified in the EU are Germany, France, the UK, Italy and
Spain. Interestingly, smaller countries like the Netherlands, Belgium, Austria and Sweden also have diversified industrial structures, cf. Figure II.6.
41
EU industrial structure 2011 Trends and Performance Figure II.6: Large economies are less dependent on a few sectors
8 7 6 BG GR RO
LU
PT 5 LV HU EE MT IE DK 4 LT CY CZ SK 3 FI SE SI 2 1 0 0 AT
NL PL BE ES
IT
UK FR
DE
500
1 000
1 500
2 000
2 500
As explained in Box II.1, being highly specialised in asector does not mean that the sector in question represents alarge share in the economy. Asector in which acountry is specialised represents, in proportion, more than in other countries. In certain countries, sectoral indexes reach very high values. The indices should be interpreted with caution. As indicated in the headings below every country abbreviation, data availability for the countries differs substantially in some cases. The latest data available for UK and Poland refer to2005and2006for Bulgaria. For the countries where data is available for2009, the recent crisis may have affected the specialisation indices significantly compared to 2008: manufacturing of refined petroleum products illustrates this. The industry only accounted for1.7% and1.9% of Hungarian GDP in2008and2009respectively. The corresponding EU-27shares were0.3% and0.2%. Even though the industry declined in absolute terms in Hungary, the specialisation index increased from5.5to8.5since it declined less than the whole economy while the opposite occurred for the whole EU-27.
The highest sectoral level of specialisation is in Hungary, with aspecialisation of8.5in refined petroleum products. Another high level of sectoral specialisation is found in Ireland with aspecialisation of6.0in chemicals. Bulgaria and Romania show high specialisation in agriculture. These findings reflect the trend according to which the more developed a country is, the less important the primary sector becomes. For mining and quarrying, Bulgaria, Denmark and the Netherlands are the most specialised. The lowest specialisation in manufacturing can be found in Cyprus, Greece, Latvia and Luxembourg, with specialisation indices between0.4and0.7. Luxembourg stands out as highly specialised in financial intermediation. Looking more closely at manufacturing sectors, a few facts are worth highlighting. The Baltic countries Estonia, Latvia and Lithuania are highly specialised in the wood industry with specialisation indices between3and6. Italy still has avery high specialisation in leather, cf. Table II.2.
42
Table II.2:
Sectoral specialisation indices1997and2009

EL HU 2000 2009 1997 2009
Code
Sector
DA
AT 1997 2007 Agriculture, hunting and forestry 0.86 1.01 Fishing 0.04 0.06 Mining and quarrying 0.43 0.53 Manufacturing 1.01 1.17 Food products; beverages and 0.91 0.98 2.66 5.75 0.60 0.57 1.22 1.79 4.73 0.54 0.69 1.82 2.57 0.19 0.48 1.16 1.42
BE 1997 2009 0.57 0.41 0.31 0.26 0.19 0.15 1.03 0.94 1.11 1.06
BG 1998 2006 7.35 4.99 0.46 0.54 2.38 3.30 0.97 1.08 2.25 1.45
CY 1997 2009 1.40 1.30 2.57 3.13 0.28 0.46 0.56 0.46 1.59 1.06
CZ 1997 2009 1.54 1.42 0.45 0.11 2.08 1.52 1.38 1.59 1.67 1.49
DE 1997 2009 0.48 0.56 0.11 0.17 0.34 0.39 1.13 1.53 0.84 0.84
DK 1997 2009 1.08 0.50 2.54 1.92 1.55 3.46 0.86 0.89 1.24 1.23
EE 1997 2009 1.72 1.46 5.73 4.19 1.83 1.76 1.01 0.96 1.95 1.15
ES 1997 2009 1.74 1.55 3.21 2.79 0.44 0.25 0.96 0.85 1.21 1.11
FI 1997 2009 1.48 1.66 1.08 1.01 0.35 0.51 1.25 1.22 0.95 0.92
FR 1999 2009 1.22 1.05 1.18 1.05 0.21 0.20 0.82 0.71 0.91 0.77
2.06 0.25 0.34 1.44 1.14
DB
tobacco Textiles and textile products
DC
Leather and leather products
DD
Wood and wood products
DE
0.84 0.78 1.14 1.05 0.64 0.53 0.25 0.23 2.17 2.37 0.64 0.70 0.96 1.07 0.89 0.89
2.59 4.81 3.08 1.72 0.89 0.96 0.63 0.57
1.14 1.26 1.54 0.49
0.33 1.45 1.24 0.53 0.63 0.47 0.32 2.28 1.94 1.16 0.79 0.56 0.46 0.75 0.61 1.62 1.76 0.21 1.05 0.60 0.32 0.36 0.24 0.03 1.47 0.68 1.73 1.00 0.47 0.40 0.69 0.65 0.63 0.61 1.61 1.86 2.62 1.05 0.95 1.10 0.88 4.61 5.56 1.01 0.76 3.21 2.08 0.64 0.56 0.67 0.46 0.55 0.84 1.07 1.00 1.19 1.04 0.83 0.86 0.99 0.88 0.97 2.99 2.36 0.74 0.70 0.42 0.65
1.48 1.61 1.08 0.75
0.72 1.03 0.85 0.84
DF
Paper products; publishing and printing Refined petroleum products
DG
Chemicals, chemical products
DH
Rubber and plastic products
DI
1.24 0.80 1.90 2.69 0.58 0.87 1.98 1.72 0.89 1.07 0.82 0.81 1.47 1.47 1.16 1.29 1.02 0.79 1.32 0.33 0.41 1.99 1.62 1.11 1.58 0.70 0.64 0.54 0.74 0.96 0.99
5.52 3.41 0.41 0.02 0.67 0.68 0.26 0.27 0.43 0.69 0.40 0.39 0.59 1.87 1.23 1.59
1.38 0.21 0.53 0.54 0.13 0.62 0.09 2.23 1.53 1.01 0.83 1.77 0.98 0.69 1.15 1.49 0.90 1.17 0.71 0.46 0.87 0.87 0.77 0.96 1.09 2.51 1.22 1.58 0.91 0.90 0.49 0.65 0.93 0.84 0.89 0.96 2.21 2.04 1.02 1.03 0.88 0.73 1.17 1.22 1.51 1.36 0.81 0.93 1.07 1.13
1.13 0.66 2.07 3.41 6.58 8.45 0.81 0.73 0.39 0.37 1.17 1.26 0.91 0.78 0.42 0.50 0.93 1.64 0.72 0.76 1.06 0.82 1.09 1.19 0.90 0.78 0.43 0.57 0.78 0.91
DJ
1.24
1.47
1.12
DK
Other non-metallic mineral products Basic metals and fabricated metal products Machinery and equipment n.e.c.
DL
Electrical and optical equipment
DM
Transport equipment
DN
Manufacturing n.e.c.
Construction
Wholesale and retail trade
Hotels and restaurants
1.05 1.07 0.59 1.61 1.01 1.42 1.13 1.48 1.10
1.45 1.18 0.87 1.36 1.32 1.11 1.09 1.52 0.92
0.58 0.76 0.88 0.74 1.15 0.88 1.02 0.58 1.16
0.54 0.61 0.60 0.63 0.91 0.86 1.08 0.56 1.16
0.74 0.30 0.31 0.18 2.19 0.87 0.54 0.78 1.23
0.78 0.13 0.11 1.38 1.57 1.53 2.21 1.23 0.57 0.07 0.10 1.10 1.81 1.35 2.07 0.72 0.23 0.05 0.06 1.13 2.36 1.58 2.31 0.29 1.12 1.02 0.63 1.33 1.64 0.87 1.03 1.30 1.84 0.76 0.83 1.47 2.35 0.88 1.10 0.95 0.94 1.42 1.30 1.34 1.17 1.06 0.64 0.85 0.81 1.10 1.10 0.98 1.06 0.92 0.94 1.10 0.86 3.28 2.00 1.01 0.63 0.54 0.55 0.59 1.79 1.20 1.09 1.54 1.54 0.81 0.85 1.17
1.10 1.50 0.12 1.05 0.78 0.78 1.03 0.51 0.92
0.35 0.41 0.58 0.54 1.44 1.57 0.68 0.61 0.19 0.18 0.63 1.16 0.59 0.44 1.81 2.01 0.82 0.57 0.17 0.19 0.55 0.34 1.13 0.77 0.52 0.39 0.94 0.88 0.23 0.25 2.01 1.49 1.06 0.99 0.77 0.69 0.74 0.70 0.79 0.76 1.18 1.61 1.03 1.02 0.91 1.11 0.82 0.68 1.16 1.09 1.09 1.10 1.27 1.71 0.97 1.11 0.91 1.02 1.25 0.71 1.09 1.16 0.97 0.93 0.87 0.89 0.90 0.90 1.26 1.47 0.56 0.48 2.71 2.50 0.51 0.55 0.81 0.80 2.60 2.39 1.80 1.62 1.14 0.99 1.34 1.17 0.91 0.97 1.13 1.39
0.79 1.46 0.96 0.64 1.39 0.79 0.92 0.76 1.23
0.94 2.87 1.93 0.69 1.41 0.70 1.04 0.52 1.16
Transport, storage and communication Financial intermediation
1.11 0.74 1.16 0.87 1.10 1.30 1.56 0.76 0.87
0.97 0.83
1.20 1.02
1.04 0.51 0.92 1.06 0.84 0.70
1.23 1.41 0.58 0.67 0.82 0.90 0.60 0.62
0.97 1.13
0.62 1.12
0.98 1.17 0.54 0.59 0.96 0.85 0.89 0.90 0.92 0.68 0.94 0.86 0.98 1.02 0.77 1.17 1.92
1.14 0.73 1.00
0.70 0.81 0.76
0.52 0.94 0.81
0.94 1.20 1.16
0.87 1.13 0.93 0.76 0.78 1.24 0.72 0.62 0.76 0.82 1.18 1.31 1.46 1.13 1.35
0.97
0.92
0.99
Real estate, renting and business activities Public administration and defence Education
Health and social work
0.83 0.92 0.56 1.06 0.78 1.27 0.04 0.65
0.82 1.13 0.95 1.65 1.13 1.14 0.61 0.28
1.17 1.59 1.14 0.31
1.09 1.03 0.30 0.98 0.52 0.55 0.35 0.85 0.79 0.83 0.76 0.97 0.10 0.06 2.14 1.52
1.05 1.36 1.02 0.10
1.00 1.18 1.31 1.25 1.00 0.84 0.19 1.06
1.03 1.01 1.30 0.99 0.93 1.21 0.58 0.60 0.70 0.56 0.91 1.03 1.07 1.20 1.15 1.12 1.30 1.68 0.00 0.00
43
1.15 1.03 1.37 1.32 0.69 0.73 1.07 1.19 0.82 0.86 0.83 1.00 1.03 0.40 0.34 0.58 0.54 0.57 O Other social & personal services 1.11 1.00 0.63 0.67 0.38 0.55 1.06 0.94 0.80 P Activities of households 0.08 0.07 0.48 0.32 0.00 0.00 0.96 2.02 0.03 Note: Specialisation index for refined petroleum products in Denmark are based on2008data. Source: own calculations using Eurostat data.
Table II.2 (continued): Sectoral specialisation indices1997and2009
44
2.68 3.96 1.08 0.81 3.08 1.73 1.86 0.69 2.32 0.31 3.73 0.86 1.15 0.00 0.42 0.47 0.59 0.00 0.32 0.40 1.78 0.17 5.98 0.64 1.00 0.13 5.91 0.74 2.44 1.71 0.18 0.75 1.01 0.08 0.20 1.18 0.36 0.20 0.52 1.16 0.35 0.18 0.66 1.14 1.58 1.43 1.71 0.73 1.32 0.86 1.82 0.95 3.23 4.82 1.49 0.93 3.18 3.70 1.83 0.93 2.64 2.29 1.95 0.44 2.81 2.82 2.37 0.81 0.23 0.16 1.86 1.70 0.28 0.00 1.96 1.59 2.29 2.78 2.20 1.30 1.33 1.80 2.02 1.19 1.32 1.45 1.82 1.08 1.27 1.71 3.92 1.01 1.02 0.55 0.65 1.36 0.52 0.76 0.89 1.19 0.00 0.66 0.28 0.86 0.00 1.06 1.20 0.83 0.00 0.50 2.23 1.21 0.00 0.16 1.09 0.79 0.01 0.21 0.25 0.45 0.00 0.39 0.43 0.73 0.05 0.47 1.25 0.86 0.01 1.09 0.90 0.87 0.81 1.35 0.60 0.66 1.27 1.09 0.63 0.72 1.45 0.76 1.02 1.37 1.88 0.73 1.44 1.50 0.25 0.64 0.65 2.12 1.23 0.49 0.77 1.55 2.54 0.66 0.58 1.44 3.25 0.54 1.22 1.63 0.68 1.10 0.74 0.47 1.04 1.38 0.69 0.62 0.23 1.45 1.56 1.33 0.03 1.85 2.00 1.18 5.08 0.91 0.94 1.47 1.40 0.46 1.66 1.70 0.96 1.02 1.16 0.77 1.46 0.95 1.00 0.98 1.32 1.07 0.98 1.58 1.34 1.37 0.64 1.39 0.29 0.50 0.58 2.62 1.60 1.02 1.52 0.47 2.02 0.51 0.23 0.04 0.33 0.54 1.11 0.91 0.92 1.47 0.29 0.23 0.06 0.15 0.51 0.85 1.02 0.50 1.28 0.25 0.21 0.23 0.94 1.85 1.10 1.42 0.40 2.03 0.16 0.39 0.25 0.94 1.50 1.05 1.36 0.46 1.67 0.23 2.02 0.59 3.39 0.79 0.77 1.26 2.54 1.47 0.10 1.96 0.70 2.47 0.85 0.61 0.97 1.46 1.21 0.63 0.56 0.40 1.46 0.59 0.94 1.13 0.71 1.04 0.68 0.45 0.34 1.62 0.95 0.96 1.10 0.58 0.93 0.78 0.66 0.62 1.45 1.19 1.29 1.63 0.38 0.91 0.76 0.71 0.90 1.48 1.71 1.00 1.65 0.42 1.03 0.41 0.61 0.59 1.04 1.02 1.26 1.18 1.41 0.96 0.45 0.62 0.45 1.08 1.35 1.06 1.20 1.65 1.02 0.78 0.63 0.75 1.82 1.38 1.04 0.81 1.04 1.25 0.53 0.81 1.63 1.46 0.98 1.85 1.05 0.65 1.63 1.29 1.31 1.32 0.73 1.13 0.76 0.89 0.49 1.17 1.11 1.42 0.91 0.70 1.38 0.83 1.03 0.50 1.07 1.09 1.30 0.43 1.88 0.90 1.19 1.04 0.89 1.04 1.29 1.27 0.86 1.45 1.32 1.25 1.12 0.78 1.06 1.07 0.82 0.55 0.92 1.51 1.30 1.20 0.60 1.55 0.76 1.64 1.58 1.40 2.29 1.50 1.43 0.46 1.04 0.84 1.13 1.05 1.01 0.81 0.90 0.98 1.01 1.12 1.03 0.57 0.78 0.09 1.20 0.54 0.75 0.18 0.85 0.72 0.62 1.03 0.75 0.66 0.50 0.74 1.04 0.52 1.06 0.00 1.04 0.44 1.20 0.00 1.13 0.73 1.12 0.38 1.10 0.88 2.76 0.59 0.90 1.18 0.81 0.82 0.95 1.30 0.78 0.82 0.93 0.54 0.91 1.26 0.99 0.52 0.95 1.16 1.33 0.80 0.57 1.63 1.30 0.86 0.62 1.80 0.40 0.23 0.63 0.00 0.76 0.43 0.82 0.00 1.10 1.55 0.97 0.03 1.09 1.54 1.09 0.08 1.09 0.80 0.96 0.18 1.07 0.75 0.84 0.15 0.68 0.72 0.81 0.00 0.64 0.44 0.87 0.00 1.09 1.00 1.10 0.94
Code
Sector
DA
IE IT LT LU LV MT NL PL PT RO SE SI SK UK 1997 2009 1997 2009 1997 2009 1997 2009 2000 2009 1997 2009 1997 2009 1997 2005 1997 2007 1997 2008 1997 2009 1997 2009 1997 2009 1997 2005 Agriculture, hunting and forestry 1.77 0.56 1.13 1.09 3.96 2.06 0.31 0.19 1.84 2.00 0.96 1.14 1.25 1.06 2.43 2.50 1.58 1.24 6.95 4.30 0.95 1.09 1.54 1.53 1.96 2.46 0.49 0.48 Fishing 3.87 1.34 1.31 1.48 0.47 1.25 0.00 0.00 4.37 1.77 2.24 3.86 0.84 0.45 0.35 0.29 3.63 4.11 0.08 0.16 0.33 0.39 0.13 0.21 0.04 0.11 0.56 0.43 Mining and quarrying 0.92 0.68 0.62 0.48 0.48 0.42 0.16 0.12 0.13 0.65 0.32 0.45 3.09 4.06 3.56 3.17 0.53 0.63 3.11 1.22 0.36 0.81 0.94 0.61 1.04 0.78 2.70 2.79 Manufacturing 1.56 1.63 1.10 1.09 0.94 1.10 0.66 0.43 0.70 0.67 1.01 0.90 0.82 0.85 1.00 1.07 0.95 0.85 1.31 1.36 1.09 1.05 1.31 1.32 1.16 1.32 1.03 0.75 Food products; beverages and 2.23 2.16 0.92 0.98 2.24 2.06 0.51 0.35 1.67 1.22 1.21 0.97 1.23 1.51 1.55 1.60 1.02 0.95 3.41 3.03 0.78 0.71 1.27 0.86 1.13 0.92 1.14 0.94
DB
tobacco Textiles and textile products
DC
Leather and leather products
DD
DE
0.65 0.28 0.81 2.60
0.29 0.24 0.59 2.46
2.30 3.38 1.19 0.72
0.53 0.22 0.69 1.15
DF
Paper products; publishing and printing Refined petroleum products
DG
Chemicals, chemical products
DH
Rubber and plastic products
DI
0.13 4.47 0.67 1.24
0.10 6.03 0.58 0.70
1.45 0.85 1.05 1.26
0.66 0.82 0.91 0.66
DJ
0.36 1.44 1.13 0.52 0.47 0.35 0.23 0.74 0.71 0.94 0.95 0.67 0.63 1.14 0.91 1.21 0.99 1.33 1.58 1.67 1.88 0.89 0.59
DK
DL
DM
Other non-metallic mineral products Basic metals and fabricated 0.40 0.32 1.32 1.27 0.18 metal products Machinery and equipment n.e.c. 0.50 0.28 1.22 1.30 0.37 Electrical and optical equipment 2.55 2.56 0.89 0.96 0.51 Transport equipment 0.27 0.23 0.65 0.62 0.25
DN
Manufacturing n.e.c.
Construction
Wholesale and retail trade
Hotels and restaurants
0.77 0.53 0.99 0.89 0.87 0.86
0.58 0.66 0.89 0.85 0.75 0.80
1.37 0.81 0.91 1.14 1.32 1.03
0.59 0.64 0.76 0.85 1.03 0.96 1.01 0.98 1.02
Transport, storage and communication Financial intermediation
1.29 1.70 0.81 0.93 0.28 0.39 3.93 4.49 1.00 1.06 1.00 0.95 1.22 1.29 0.76 0.78 1.22 1.39 0.64 0.46 1.11 0.77 0.89 0.87 0.73 0.70 1.20 1.48 1.01 0.49 0.62 0.90 0.96 0.67 0.86 0.62 0.80 1.00 0.89 0.58 0.63 0.68 0.68 0.53 0.55 0.95 0.94 0.72 0.79 0.67 0.65 0.98 1.07 1.03 1.27 1.13 0.85 0.79 1.30 1.26 1.04 1.05 1.05 1.12 0.91 0.98 1.17 1.40 0.41 0.78 0.80 0.75 0.81 0.96 0.78 1.08 0.76 0.76
Real estate, renting and business 0.61 0.75 0.94 activities Public administration and 0.73 0.84 0.87 defence Education 0.96 1.11 1.07 Health and social work 0.96 1.08 0.85
Other social & personal services
Activities of households
0.94 0.81 0.85 0.73 0.86 0.76 0.26 0.20 1.91 2.08
1.06 1.01 1.20 0.93
For countries as a whole, it should be noted that, in principle, specialization is not necessarily a good or bad thing per se. On one hand, specialization may reflect anatural focus on what the country does better relative to trade partners (comparative advantage), and hence again of overall productivity. On the other hand, diversification will always render asociety more resilient to external shocks; adownturn in aspecific sector can be compensated by other sectors still doing well and feeding public finances that eventually help cushion the negative impact of the shock (e.g., paying unemployment insurance). Nevertheless, diversification can also be seen as reflecting asociety with awider choice for its citizens; ahigh degree of diversification is very likely reflecting a strong and diverse human capital base that makes it possible to have from artists to engineers producing from haut couture to satellites. Given that by nature larger countries tend to be more diversified, countries below the line in figureII.6 can be seen as reaping the benefits from having amore diversified economy than the average country given its size. In that reading, Belgium is ahighly diversified country for its size whereas Italy, despite its large size, is less diversified and, in principle, more vulnerable to sectoral shocks or to competition from emerging economies due to high specialisation in low skill industries such as textiles and leather products.
II.2 Skill and technology specialization

The sectors analysed are classified according to the statistical nomenclature (NACE Rev. 2) presenting data on economic activities. It is sometimes useful to use other ways to classify sectors according to economic and technological criteria. Such classification can be used to illustrate similarities and differences between countries and sectors. Industry taxonomies are used for this purpose to group industries that have common characteristics. Once the taxonomies are applied to EU member states, it is possible to compare patterns across countries. The focus below is on two different taxonomies: one on skills and one on technology. It is not only the quantity of these inputs that matters for sectoral performance but also their qualities. As in the previous section, two different types of indicators are available: abreakdown by value added share and specialisation.
II.2.1 Changes in skills specialization

The types of education and training that contribute to making asector competitive can be very sectorspecific. Similarly, different levels of skills are needed across sectors. The measure of skill intensity, represented by the levels34 of education attainment that dominate in asector, reflects this heterogeneity. The sectors in which people reached a similar level of educational attainment are classified according to different levels of skills. This led to four different categories, cf. Box II.2.
Box II.2: Labour skills taxonomy

The taxonomy of labour skills is presented and discussed in Chapter II of OMahony and van Ark (2003), EUproductivity and competitiveness An industry perspective, European Commission. Ameasure of educational attainment is the metric that has been used to reflect skill intensity. The sectors from the NACE Rev1. classification were broken down in the following way: Low skill: AAgriculture, hunting and forestry, BFishing, CMining and quarrying, DA15Manufacture of food products and beverages, DA16Manufacture of tobacco products, DB Manufacture of textiles and textile products, DC Manufacture of leather and leather products, DH Manufacture of rubber and plastic products, DI Manufacture of other nonmetallic mineral products, DJ27Manufacture of basic metals, DM34Manufacture of motor vehicles, trailers and semitrailers, DN36Manufacture of furniture; manufacturing n.e.c., DN37Recycling, HHotels and restaurants, OOther community, social, personal service activities.
34
A common measure is the one provided by International Standard classification ISCED. The classification can be found on: http://www.uis.unesco.org/Pages/default.aspx
45

Low intermediate skill: DD Manufacture of wood and wood products, DE Manufacture of pulp, paper and paper products; publishing and printing, DJ28Manufacture of fabricated metal products, except machinery and equipment, DK Manufacture of machinery and equipment n.e.c., DL31Manufacture of electrical machinery and apparatus n.e.c., FConstruction, GWholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods, I60Land transport; transport via pipelines, I61Water transport. High intermediate skill: DL33Manufacture of medical, precision and optical instruments, watches and clocks, DM35Manufacture of other transport equipment, EElectricity, gas and water supply, I62Air transport, I63Supporting and auxiliary transport activities; activities of travel agencies, I64Post and telecommunications, K71Renting of machinery and equipment without operator and of personal and household goods, NHealth and social work. High skill: DF Manufacture of coke, refined petroleum products and nuclear fuel, DG Manufacture of chemicals, chemical products and manmade fibres, DL30Manufacture of office machinery and computers, DL32Manufacture of radio, television and communication equipment and apparatus, JFinancial intermediation, K70Real estate activities, K72Computer and related activities, K73Research and development, K74Other business activities, LPublic administration and defence; compulsory social security, MEducation. To obtain asufficiently detailed sectoral skill intensity data set, the Eurostat and EUKLEMS databases were combined.
Belgium, Cyprus, France, Luxembourg and the United Kingdom have the highest shares of high skilled labour, above the EU-25average of43%, in the economy in2007. Those countries also display the highest specialisations, above1, in high skill sectors in2007. The Czech Republic, Greece, Malta, Poland, Slovakia and Spain have the highest shares of low skilled labour, well above the EU-25average of21%, in the economy in2007. They also display the highest specialisation indexes in low labour skill sectors. There were very few significant structural changes from1997to2007. The most remarkable move towards high skilled labour
industries can be observed in Latvia: both the shares of these industries and the specialisation indexes have significantly increased. The lowintermediary skill sectors in Latvia have also seen their shares and specialisation index improve. The change has taken place at the expense of the highintermediary skill and low skill sectors. Lithuania, the neighbour country, has not made as impressive progress towards high skill sectors, but the size of low skill sectors in the economy has shrunk considerably. Malta and Portugal both increased their shares and specialisation in high and intermediaryhigh skill sectors, cf. Tables II.3and II.4.
Table II.3:
Share of industry by labour skill in1997and2007(%)

HS 1997 2007
35.9 46.1 43.2 29.0 37.6 34.2 36.7 47.3 41.2 35.0 40.6
HIS 1997
13.5 15.5 12.7 14.4 18.0 14.6 18.2 15.5 15.4 11.8 13.3
LIS 2007
14.4 16.3 12.4 15.0 17.9 14.0 17.8 14.1 16.6 13.2 13.2
LS 2007
31.0 25.5 26.5 33.5 28.4 35.0 31.1 25.1 25.4 29.6 26.8
1997
32.6 24.9 26.4 33.0 28.8 31.0 31.9 24.0 27.9 25.9 26.3
1997
19.3 14.8 24.5 25.7 17.1 22.2 16.0 15.8 16.7 27.4 24.2
2007
18.7 12.1 17.9 22.5 16.2 16.7 14.4 13.5 16.8 22.2 19.5 >>>
Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary
34.6 44.8 36.5 26.8 36.1 32.2 34.0 44.8 40.1 34.8 36.3
46
Chapter II Changes in EU Industrial structure HS 1997

Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden United Kingdom EU-25 39.5 37.0 27.2 26.7 n.a. 32.0 40.1 28.4 35.9 29.2 33.7 32.6 37.5 37.8 41.2
HIS 2007
42.6 40.7 33.8 28.3 55.5 37.6 41.5 30.8 39.3 29.0 37.7 34.1 37.1 43.1 42.6
LIS 2007
14.9 12.7 13.1 14.1 13.3 16.1 16.8 13.0 15.9 13.8 13.6 12.7 19.9 15.6 15.2
LS 2007
28.2 29.4 37.9 38.6 21.1 21.4 25.9 34.6 25.9 36.7 30.7 31.5 28.7 25.4 26.5
1997
12.8 11.9 17.3 13.4 n.a 13.7 14.9 11.1 12.8 14.5 12.5 13.0 19.3 15.5 14.9
1997
26.4 30.4 33.7 32.6 n.a 28.7 26.9 35.6 28.9 35.6 31.3 27.7 28.3 27.5 26.6
1997
21.2 20.7 21.8 27.3 n.a 25.6 18.1 24.9 22.4 20.6 22.5 26.8 14.9 19.3 17.2
2007
14.3 17.2 15.3 19.0 10.1 24.9 15.7 21.7 18.9 20.5 18.1 21.7 14.3 15.9 15.7
Note: Bulgaria and Romania not available for lack of data. Source: own calculations using EU KLEMS and Eurostat data.
Table II.4:
Country specialisation by labour skill in1997and2007

HS 1997 2007
0.84 1.08 1.01 0.68 0.88 0.80 0.86 1.11 0.97 0.82 0.95 1.00 0.96 0.79 0.66 1.30 0.88 0.97 0.72 0.92 0.68 0.88 0.80 0.87 1.01
HIS 1997
0.90 1.03 0.85 0.97 1.20 0.98 1.22 1.04 1.03 0.79 0.89 0.86 0.80 1.16 0.90 n.a. 0.92 0.99 0.74 0.86 0.97 0.84 0.87 1.29 1.04
LIS 2007
0.94 1.07 0.81 0.99 1.18 0.92 1.17 0.92 1.09 0.87 0.87 0.98 0.83 0.86 0.92 0.87 1.06 1.11 0.85 1.05 0.91 0.89 0.84 1.31 1.03
LS 2007
1.17 0.96 1.00 1.26 1.07 1.32 1.17 0.95 0.96 1.12 1.01 1.06 1.11 1.43 1.46 0.80 0.81 0.98 1.30 0.98 1.38 1.16 1.19 1.08 0.96
1997
1.23 0.94 0.99 1.24 1.08 1.16 1.20 0.90 1.05 0.97 0.99 0.99 1.14 1.26 1.22 n.a. 1.08 1.01 1.33 1.08 1.34 1.17 1.04 1.06 1.03
1997
1.12 0.86 1.42 1.50 1.00 1.29 0.93 0.92 0.97 1.60 1.41 1.24 1.21 1.27 1.59 n.a. 1.49 1.05 1.45 1.30 1.20 1.31 1.56 0.87 1.12
2007
1.19 0.77 1.14 1.44 1.03 1.07 0.92 0.86 1.07 1.41 1.24 0.91 1.10 0.98 1.21 0.64 1.59 1.00 1.38 1.21 1.31 1.15 1.38 0.91 1.01
Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden United Kingdom
0.84 1.09 0.88 0.65 0.88 0.78 0.82 1.09 0.97 0.84 0.88 0.96 0.90 0.66 0.65 n.a. 0.78 0.97 0.69 0.87 0.71 0.82 0.79 0.91 0.92
47
II.2.2 Changes in technology specialization

The technology taxonomy provides insight concerning the technology shares and specialisation across EU
manufacturing sectors. The sectors in which the R&D intensity reached similar levels were regrouped. This led to four different categories, cf. BoxII.3.
Box II.3: Technology taxonomy

The OECD (1997) classification of industries based on technological intensity was used as areference. According to this classification, R&D intensity, expenditures on R&D relative to value added, is the main criterion for evaluating the technological content of an industry. As aresult, manufacturing industries (following NACE rev.1) are broken down in four groups. Low tech: DA Manufacture of food products, beverages and tobacco, DB Manufacture of textiles and textile products, DC Manufacture of leather and leather products, DD Manufacture of wood and wood products, DE Manufacture of pulp, paper and paper products; publishing and printing. Low intermediate tech: DF Manufacture of coke, refined petroleum products and nuclear fuel, DH251Manufacture of rubber products, DH252Manufacture of plastic products, DI Manufacture of other nonmetallic mineral products, DJ27 Manufacture of basic metals, DJ28 Manufacture of fabricated metal products, except machinery and equipment, DM351Building and repairing of ships and boats, DN Manufacturing n.e.c. High intermediate tech: DG241Manufacture of basic chemicals, DG242Manufacture of pesticides and other agrochemical products, DG247 Manufacture of manmade fibres, DG243 Manufacture of paints, varnishes and similar coatings, printing ink and mastics, DG245 Manufacture of soap and detergents, cleaning and polishing preparations, perfumes and toilet preparations, DG246 Manufacture of other chemical products, DK291Manufacture of machinery for the production and use of mechanical power, except aircraft, vehicle and cycle engines, DK293Manufacture of agricultural and forestry machinery, DK294Manufacture of machinetools, DK295Manufacture of other special purpose machinery, DK292 Manufacture of other general purpose machinery, DL31Manufacture of electrical machinery and apparatus n.e.c., DK297Manufacture of domestic appliances n.e.c., DM352Manufacture of railway and tramway locomotives and rolling stock, DM34Manufacture of motor vehicles, trailers and semitrailers, DM354Manufacture of motorcycles and bicycles, DM355Manufacture of other transport equipment n.e.c., DL33Manufacture of medical, precision and optical instruments, watches and clocks, DK296Manufacture of weapons and ammunition. High tech: DG244Manufacture of pharmaceuticals, medicinal chemicals and botanical products, DL30Manufacture of office machinery and computers, DL32Manufacture of radio, television and communication equipment and apparatus, DM353Manufacture of aircraft and spacecraft.
As with all indicators, interpretations should be cautious. The base of the calculation of the indicators is the manufacturing aggregates in all countries, so some countries with a relatively small manufacturing base can obtain high values in acertain category of skill and technology. The overall EU-25 is characterised by high shares in the medium low technology and medium high technology sectors. Those represent almost two thirds of the EU-25in2007. Finland, Hungary, Ireland, Malta, Sweden, and the United Kingdom have had the highest
48
shares of high technology sectors, above13%, in2007. Those are also the countries with the highest specialisation indices, above 1.3, in high technology sectors in 2007. Cyprus, Estonia, Greece, Latvia, Lithuania and Portugal have the highest shares of low technology, above40%, in2007and also have the highest specialisation indexes in low technology sectors, above1.6. There were very few significant structural changes from1997to2007. With the exception of Portugal, all the countries with high shares and specialisation in low technology are moving up the
technology scale. They are less and less specialised in low technology industries. Latvias low technology sector share in the economy decreased from69% to54%, Cyprus from58% to45%, Lithuania from59% to44% and Greece and Estonia from55% to43% and42% respectively. On the other side of the spectrum, Finland has reinforced its high technology specialisation. Finland, which was still behind Sweden in Ireland in1997in terms of overall share of high technology sectors, has the highest share
of high technology industries in 2007. High technology manufacturing industries represented more than 20 % of Finish manufacturing. The importance of Nokia in the Finnish economy explains a large part of this. The relationship between technology and skill intensities is weak for some countries. Cyprus, which exhibited large shares and large specialisation in high skill sectors according to the two previous tables, is specialised in low technology and mediumtechnology sectors, cf. Tables II.5and II.6.
Table II.5:
Share of industry by technology categories in1997and2007(%)

HT 1997 2007
6.0 12.1 3.1 4.9 9.3 3.9 20.7 10.6 8.3 4.9 13.0 18.8 5.6 3.0 2.2 1.1 14.4 4.6 3.8 2.3 6.0 7.7 4.7 14.7 13.2 9.5
MHT 1997
27.0 33.7 8.5 27.6 27.6 17.0 24.8 29.2 40.6 12.8 29.4 35.1 28.4 11.0 13.2 19.7 24.8 28.8 24.3 18.8 25.4 25.7 28.0 33.6 29.3 32.2
MLT 2007
33.8 28.6 10.3 37.3 32.5 18.4 24.6 29.6 49.7 11.9 39.8 37.0 30.0 12.0 18.1 16.6 31.1 31.3 26.9 17.1 27.7 34.5 28.6 34.5 27.6 35.7
LT 2007
34.7 33.4 41.4 36.5 28.9 35.8 26.2 32.7 25.2 40.2 27.2 9.5 36.3 31.2 36.2 60.6 26.9 31.0 35.5 33.0 40.6 34.1 38.3 26.2 26.6 29.6
1997
35.1 29.3 32.0 36.6 28.2 23.0 23.4 30.2 28.0 29.2 29.5 11.1 32.9 16.2 22.4 54.1 28.7 28.7 33.0 28.2 39.1 29.5 33.3 23.6 26.2 30.5
1997
29.8 28.1 57.9 29.2 34.4 54.8 39.3 29.5 21.6 54.6 32.1 35.8 32.2 68.3 58.3 25.7 35.4 34.8 38.5 47.4 30.7 35.4 32.8 27.8 32.4 28.8
2007
25.5 26.0 45.3 21.4 29.4 41.9 28.5 27.0 16.8 43.0 20.0 34.7 28.2 53.8 43.5 21.6 27.6 33.1 33.9 47.5 25.7 23.7 28.4 24.6 32.6 25.2
Austria Belgium Cyprus Czech Republic Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden United Kingdom EU-25
8.1 8.9 1.6 6.6 9.8 5.2 12.5 11.1 9.8 3.3 9.0 18.0 6.5 4.5 6.1 0.6 11.0 7.7 4.2 5.6 4.8 9.4 6.0 15.0 12.0 8.5
Table II.6:
Country specialisation by technology categories in1997and2007

HT 1997 2007
0.6 1.3 0.3 0.5 1.0
MHT 1997
0.8 1.0 0.3 0.9 0.9
MLT 2007
0.9 0.8 0.3 1.0 0.9
LT 2007
1.2 1.1 1.4 1.2 1.0
1997
1.1 1.0 1.0 1.2 0.9
1997
1.0 1.0 2.0 1.0 1.2
2007
1.0 1.0 1.8 0.8 1.2 >>>
Austria Belgium Cyprus Czech Republic Denmark
1.0 1.0 0.2 0.8 1.2
49

HT 1997
Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden United Kingdom 0.6 1.5 1.3 1.2 0.4 1.1 2.1 0.8 0.5 0.7 0.1 1.3 0.9 0.5 0.7 0.6 1.1 0.7 1.8 1.4
MHT 2007
0.4 2.2 1.1 0.9 0.5 1.4 2.0 0.6 0.3 0.2 0.1 1.5 0.5 0.4 0.2 0.6 0.8 0.5 1.5 1.4
MLT 2007
0.5 0.7 0.8 1.4 0.3 1.1 1.0 0.8 0.3 0.5 0.5 0.9 0.9 0.8 0.5 0.8 1.0 0.8 1.0 0.8
LT 2007
1.2 0.9 1.1 0.9 1.4 0.9 0.3 1.2 1.1 1.2 2.0 0.9 1.0 1.2 1.1 1.4 1.2 1.3 0.9 0.9
1997
0.5 0.8 0.9 1.3 0.4 0.9 1.1 0.9 0.3 0.4 0.6 0.8 0.9 0.8 0.6 0.8 0.8 0.9 1.0 0.9
1997
0.8 0.8 1.0 0.9 1.0 1.0 0.4 1.1 0.5 0.7 1.8 0.9 0.9 1.1 0.9 1.3 1.0 1.1 0.8 0.9
1997
1.9 1.4 1.0 0.8 1.9 1.1 1.2 1.1 2.4 2.0 0.9 1.2 1.2 1.3 1.6 1.1 1.2 1.1 1.0 1.1
2007
1.7 1.1 1.1 0.7 1.7 0.8 1.4 1.1 2.1 1.7 0.9 1.1 1.3 1.3 1.9 1.0 0.9 1.1 1.0 1.3
II.3 Size distribution of enterprises

The distribution of economic activity according to the size of the enterprises provides ameasure of the degree of concentration and of the share of large and small enterprises in the economy. This is of interest in understanding sectoral performance, in analysing competitiveness, and for policy. The distribution reflects certain characteristics of sectors and, simultaneously, influences performance and competitiveness. Sectoral technology (e.g. economies of scale) and market size are some of the factors explaining the enterprisesize structure of the sector, which, in turn, determines market power and sectoral performance and competitiveness. It is clear that the resilience or vulnerability of sectors and enterprises to certain market shocks is affected by the size of enterprises, which also plays acrucial role in innovation and the development of new activities and products. For these reasons, it is important to bear in mind the size of enterprises in the sectoral analysis, and to incorporate it into formulation of industrial policy. It is often argued that small and mediumsized enterprises (SMEs) constitute the backbone of the EU economy. However, the share of SMEs varies significantly among industries. The figure below presents, in a decreasing order, the sectors where large enterprises dominate: large enterprises are those with 250 or more employees. The units underlying these distributions are enterprises. The concentration of value added
50
in large enterprises that characterises some of the sectors does not necessarily imply economies of scale since enterprises, and more particularly the largest ones, may own several small plants. Large enterprises represent more than80% of value added in the industries producing tobacco, the communications sector, mineral oil refining and nuclear fuel, motor vehicles, air transport and other transport equipment. The first impression is that manufacturing sectors are generally formed by larger enterprises than services sectors. Indeed, 55 % on average of enterprises of the manufacturing sector are above250employees against36% on average in the services sectors. The sectors with more than80% of SMEs are real estate activities, recycling and construction. But, contrary to common belief that manufacturing enterprises are supposed to be large, decomposition of firm size distribution by sector reveals amore nuanced picture. Many manufacturing sectors are dominated by small firms, especially the industries producing leather and footwear, fabricated metal products, wood products, textiles, clothing, and furniture where between72% and79% of the firms have fewer than250employees, cf. Figure II.7.35
35
According to the official EU definition of an SME, the number of employees is not the only criterion that matters. The definition also takes into consideration thresholds related to turnovers of balance sheet totals. Size distribution according to employment bands rather than turnover or balance sheet total was favoured because for data availability reasons.
Box II.4: SME definition

Enterprises qualify as SMEs if they meet certain employee ceilings (10,50, and250employees) and one of the two financial ceilings (turnover or balance sheets). Eurostat currently collects data regarding the three employee ceilings but not data concerning the financial ceilings.
Figure II.7: Distribution of value added by enterprise size in2007(%)

19
Tobacco Communications Mineral oil re ning and nuclear fuel Motor vehicles Air transport Other transport equipment Electricity, gas and water supply Radio and TV equipment; electronic components Basic metals Chemicals O ce machinery Electrical machinery Pulp, paper and paper products Research and development Supporting transport activities Food and drink Machinery and equipment n.e.c. Scienti c and other instruments Non-metallic mineral products Retail trade Rubber and plastics Computer and related activities Inland transport Printing and publishing Water transport Other business activities Furniture; other manufacturing Clothing Textiles Renting of machinery and equipment Hotels and restaurants Wood and wood products Wholesale trade Fabricated metal products Sale and repair of motor vehicles Leather and footwear Construction Recycling Real estate activities MANUFACTURING SERVICES TOTAL ECONOMY
1019
2049
50249
250 or more
10
20
30
40
50
60
70
80
90
100
110
II.4 Services output of manufacturing

An increasing number of manufacturing firms offer services along with their traditional physical goods. This tendency is coined convergence process in the literature. 36 By offering complementary services manufacturing, firms can differentiate their products from the competitors and reduce price elasticities for their goods. Complementary services may also be away to increase the qualities of the
36
goods and build long term relationship with customers which also might reduce the price elasticities the firms are facing. Opening up additional sources of revenue could be another motive.37 Services as shares of total manufacturing output increased in all but three EU countries between1995and2005. Largest shares are found in the Finnish and Dutch manufacturing industries where services constitute around8% of total output, cf. Figure II.8.
European Commission, DG Enterprise and Industries (2011) forthcoming. European Competitiveness Report2011.
37
Ibid.
51
EU industrial structure 2011 Trends and Performance Figure II.8: Services as shares of manufacturing output in1995and2005(%)
9 8 7 6 5 4 3 2 1 0 2005 1995
FR
PO
CZ
GR
EE
SI
HU
DK
PL
SK
ES
BE
IT
LI
DE
IE
AT
UK
SE
LU
NL
FI
Note: Wholesale and retail trade are excluded. Data for France only includes services products CPA75to92. The values for all service products include CPA50to95for EU Member States and NAICS42to92for the US. The values for services excluding wholesale and retail trade cover CPA55to95for EU Member States and NAICS48to92for the US. Data for France covers only service products CPA72to95. Source: European Commission, DG Enterprise and Industries (2011), forthcoming European Competitiveness Report2011. Authors calculations using Eurostat data.
II.5 Intersectoral spillovers acase study

The data presented in the previous chapter showed how the crisis spread to all sectors of the economy. It also provided evidence on the extent of the recovery for the sectors. While some sectors already exhibit strong growth rates at the beginning of2010, others lag behind. The fact that some sectors are affected early in the business cycle and that the development in some sectors lags behind implies that there are interlinkages between some sectors which give rise to joint movement of production and employment. Previous editions of the EU industrial structure have examined these interlinkages.38 By using output multipliers it was shown how an increase in demand for asector was translated into that sectors demand for intermediate goods from other sectors. A case study is provided below which provides more insight into these relationships. The case study provides analysis of how shocks originating in the German motor vehicles industry impact on productivity and employment
38
in four other German manufacturing industries: basic metals, fabricated metal products, rubber and plastics, and electrical equipment. Some words on the choice of industry for the analysis are in order. Lack of data did not allow for analysis of the whole EU-27manufacturing industry. The motor vehicle industry was chosen since it is one of the most important industries in the EU. The four other industries were chosen on the basis of German inputoutput tables which indicated that these industries are the most affected by increase in demand for motor vehicles. The case study is undertaken with econometric analyses. 39 The relationships between industries are analysed with vector autoregressive (VAR) models. The analyses are conducted within an empirical framework inspired by the works of Blanchard & Quah (1989) and Gal (1999) who analysed the importance of technology and nontechnology shocks for aggregate fluctuations in productivity and employment. There is no consistent
39
European Commission, DG Enterprise and Industries (2009), EU Industrial Structure2009. Performance and competitiveness.
The analyses are carried out with monthly data on production, employment and hours worked for the period January1990to August2009. All series are indices and collected from Eurostats short term business statistics database. Productivity is calculated as production per hours worked.
52
definition of shocks. Shocks, or disturbances, are often defined as significant changes in variables from underlying trends. The magnitude of changes is in general determined using measures of dispersion such as standard deviations. Shocks could also be defined as unexpected events beyond the control of industries or the entity in question. See for example the discussion in Varangis et al. (2004). Four twoindustry VARmodels were estimated, consisting of four variables: labour productivity and employment for the motor vehicles industry and for one of the other four industries respectively.40 Impulse response functions were calculated in order to see the responses of technology and nontechnology shocks
on employment and productivity growth. The impulse response functions show how, for example, employment in the rubber and plastics industries responds to aonepercentage technology shock in the motor vehicles industry. The responses are presented for atime period of four years (48) months. The responses are shown together with90percent confidence intervals. The analyses show that aonepercentage technology shock originating in the motor vehicles industry has significant positive and permanent effects on employment in the rubber and plastics industry, which increases by some2.5%. Productivity in the rubber and plastics industry increases permanently by some1.5% after atechnology shock in the motor vehicles industry, cf. Figure II.9.
Figure II.9: Atechnology shock in the motor vehicle industry has permanent effects on employment and productivity in rubber and plastics
Employment
4.5 lower upper 4.0 response 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0
1 13 25 37 48
Productivity
3.5 lower upper response
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1 13 25 37 48
40
The models are estimated in first differences of the variables since unit root tests indicated that they were nonstationary. See http:// ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_ id=6003for adetailed description of the methodology and results.
53

A nontechnology shock in the motor vehicles industry has permanent effects on employment in the rubber and plastics industry, with an increase of some 2.5 %.41 The responses of productivity are only transitory, cf. Figure II.10.
Figure II.10: Anontechnology shock has permanent effects on employment only

Employment Productivity
4.0 3.5 3.0 2.5 2.0 0.0 1.5 1.0 0.5 0.0 1 -0.5 -1.0 lower upper response
13 25 37 48
2.5 2.0 1.5 1.0 0.5
-1.5 -2.0 1
lower upper response

13 25 37 48
The results for all four industries are summarised below. The impulse response analyses indicate that atechnology shock in the motor vehicles industry permanently increase productivity in the four other industries by some 1.5 % to4% and employment in two industries by2% to2.5%.
Nontechnology shocks in the motor vehicles industry have no permanent effects on productivity in the other industries but increase employment in the four industries by2.5% to4.5%, cf. Table II.7.
Table II.7: Percentage responses of employment and productivity in four manufacturing industries to shocks in the motor vehicles industry
Technology shocks Employment
Rubber and plastics Basic metals Fabricated metal products Electrical equipment Source: own calculations using Eurostat data. 2.5 0.0 0.0 2.0
Nontechnology shocks Employment

2.6 3.5 4.5 4.0
Productivity
1.5 4.1 3.8 4.2
Productivity
0.0 0.0 0.0 0.0
41
Caution is needed when interpreting the results from the shocks, especially on employment. Since the confidence intervals are relatively wide, the estimates are not as precise as one might think by only looking at the curve of the impulse response.
54
Appendix figure
Figure II.11: Sector share in EU-27GDP in2009(%)
1997
Agriculture, hunting and forestry Fishing Mining and quarrying Manufacturing Food products; beverages and tobacco Textiles and textile products Leather and leather products Wood and wood products Paper products; publishing and printing Re ned petroleum products Chemicals, chemical products Rubber and plastic products Other non-metallic mineral products Basic metals and fabricated metal products Machinery and equipment n.e.c. Electrical and optical equipment Transport equipment Manufacturing n.e.c. Electricity, gas and water supply Construction Wholesale and retail trade Hotels and restaurants Transport, storage and communication Financial intermediation Real estate, renting and business activities Public administration and defence Education Health and social work Other social & personal services Activities of households
2009
10
15
20
25
55
Chapter III
Drivers of Sector Growth and Competitiveness

This chapter analyses economic growth in the EU from asectoral perspective. Section III.1focuses on growth in output by sectors. Industrial performance is analysed from alongterm perspective aiming at capturing main trends in sectoral developments. Section III.2 presents indicators of sectoral competitiveness using: labour productivity and unit labour costs (ULC). These indicators are used to make comparisons across sectors in the EU. The focus in Section III.3shifts to indicators for various factors of production: labour inputs, human capital, capital formation, energy and technology. Finally, Section III.4examines sectoral growth from the demand side, by analysing private consumption and investment. 1995-2009. Services activities were among the fastest growing, confirming the dynamism of market services highlighted in Section II.1. Transport, storage and communication increased on average by3.9%, financial intermediation by3.6%, real estate, renting and business activities by 3.3 % and wholesale and retail trade by2.6%. Nonetheless, the sector that outpaced all others was a manufacturing sector; manufacture of electrical and optical equipment which, on average, rose by6% during 1995-2009. While the manufacturing sectors on average grew slightly less than the EU economy as awhole,2.2% annual growth against2.4% annual growth on average, the manufacturing sectors chemicals, transport equipment, rubber and plastics, and machinery and equipment n.e.c. performed better than EU economy as awhole. Value added declined in the following sectors: fishing, mining and quarrying sectors, textiles, and leather, cf. Figure III.1.
III.1 Output growth across sectors

Growth varies considerably across EU sectors. Value added in EU sectors grew on average by2.4% during
57
EU industrial structure 2011 Trends and Performance Figure III.1: Value added average annual growth rate in the EU in19952009(%)
Electrical and optical equipment Transport and communication Health and social work Financial intermediation Chemicals Real estate and business activities Education Rubber and plastics Wholesale and retail trade Transport equipment Machinery n.e.c. Other services Total Basic metals and metal products Manufacturing Hotels and restaurants Activities of households Non-metallic mineral products Other mining Pulp, paper and publishing Construction Other manufacturing Agriculture, hunting and forestry Wood and wood products Electricity, gas and water supply Food, drinks and tobacco Re ned petroleum Fishing Textiles and clothing Public administration Mining and quarrying Mining of energy products Leather and footwear
-4
-3
-2
-1
Note: Growth rates refer to value added in constant prices. Source: own calculations using Eurostat data.
In analyses of growth in terms of production it should be taken into account that production differs from value added since intermediate consumption is included. Production measurements in real terms are only available for manufacturing sectors in the data sources used in this publication. EU average annual production growth rates in 1995-2010 are very different across sectors. Growth in the more traditional and labourintensive sectors declined more than in other sectors. Declining annual
production growth rates in1995-2010can be witnessed in leather and footwear, clothing, tobacco and textiles where growth declined on average by between2.5% and5% in 1995-2009. Conversely, the highest growing sectors tend to be more capitalintensive. Average production growth in1995-2010was the highest in pharmaceuticals, computer, electronic and optical products and in motor vehicles where growth increased by between 3 % and5.4%, cf. FigureIII.2.
58
Chapter III Drivers of Sector Growth and Competitiveness
Figure III.2: EU average annual production growth rate in1995-2010(%)

Pharmaceuticals Computer, electronic and optical products Motor vehicles Other manufacturing Chemicals Other transport eqpt. Food Machinery and equipment n.e.c. Rubber and plastic products Electrical equipment Paper and paper products Beverages Fabricated metals Repair and installation Basic metals Wood and wood products Coke and re ned petroleum Printing and publishing Non-metallic mineral products Furniture Textiles Tobacco Clothing Leather and footwear
-6
-5
-4
-3
-2
-1
Box III.1: Output measurements: Value added v. production

Value added presents the advantage of being available for all types of activities: ranging from agriculture to nonbusiness services while production is only available for manufacturing activities. The Eurostat Manual of Business Statistics identifies two possible meanings for the concept of production:1. activity of manufacturing, i.e. the transforming of goods; or2. result of this activity, i.e. the output of manufactured goods in afixed period. In both definitions of production, Eurostat excludes the services sectors. The other main difference is that valueadded is ameasure of output that subtracts intermediate consumption made by an individual producer, industry or sector while production includes intermediate consumption.
Source: European System of Accounts (ESA)1995, and NACE Rev.1, Introduction, P.21, OECD.
The developments in individual subsectors in figureIII.1 above are hidden by the level of aggregation. Studying production growth rates at the3-digit NACE level offers amore refined picture of the various EU sectors in1995-2010. Concerning the highest growing aggregated sector Computer, electronic and optical products in Figure III.1, the underlying subsectors are irradiation, electromedical and electrotherapeutic equipment, installation of industrial machinery and equipment, medical and dental instruments and supplies, optical instruments and photographic equipment, instruments and appliances for measuring, testing and navigation, electricity distribution
and control apparatus. Growth rates in these sectors varied between2.2% and4.5%. Similarly, the two subsectors of motor vehicles, parts and accessories for motor vehicles and motor vehicles, grew on average by2.4% in1995-2010. Many subsectors of the machinery and equipment industry also grew considerably, by between2% and4% in19952009: air and spacecraft and related machinery, agricultural and forestry machinery, generalpurpose machinery, and other generalpurpose machinery. On the other side of the spectrum, most of the declining subsectors are associated with the textile industry, cf.Figure III.3.
59
EU industrial structure 2011 Trends and Performance Figure III.3: EU average annual production growth rate in1995-2010(%)
Optical instruments and photographic eq. Air and spacecraft and related machinery Irradiation, electromedical and electrotherapeutic equipment Medical and dental instruments Motor vehicles Forging, pressing, stamping and roll Installation of industrial machinery and equipment Parts and accessories for motor vehicles Instruments and appliances for measuring General purpose machinery Processing and preserving of sh Soap and detergents Agricultural and forestry machinery Basic chemicals Pulp, paper and paperboard Bakery and farinaceous products Processing and preserving of meat Electric motors Vegetable and animal oils Grain mill products Wiring Other chemical products Processing and preserving of fruit Treatment and coating of metals Other food products Batteries and accumulators Sawmilling Other electrical equipment Cement, lime and plaster Concrete, cement and plaster Refractory products Wood, cork, straw and plaiting materials Tanning and dressing of leather Tanks, reservoirs and containers of metal Domestic appliances Ships and boats Other textiles Transport equipment n.e.c. Man-made bres Clay building materials Computers and peripheral equipment Other porcelain and ceramic products Finishing of textiles Weaving of textiles Clothing Knitted and crocheted clothing Preparation and spinning of textile Musical instruments Footwear Magnetic and optical media
-10
-8
-6
-4
-2
Note: The figure only shows the25high and low (negative) growth sextors. Source: own calculations using Eurostat data.
III.2 Sectoral competitiveness indicators

Competitiveness is amultidimensional concept, which is studied from two perspectives in this report. The first perspective looks at means for industries to improve their competitiveness by lowering their costs, increasing their productivity, employing skilled labour, renewing their capital stock and increasing their spending on R&D and innovation to upgrade their products. Different indicators which measure aspects of an industrys competitiveness, such as labour productivity and unit labour costs (ULC), are the subject of the remainder of this chapter. The second perspective studies how effective industries have been in improving their competitiveness in the international markets. This perspective is analysed in Chapter V.
60
This section presents a set of indicators on EU sectoral growth, productivity, unit labour costs and relative prices. The objective is to present stylised facts across the main sectors of the economy and to show the role of labour productivity in sectoral competitiveness. More precisely, market services are subdivided into two groups. The first consists of wholesale and retail trade, repair of motor vehicles, motorcycles and personal and household goods, hotels and restaurants, transport, storage and communication (NACE Rev. 1 categories G to I) and the second comprises financial intermediation, real estate, renting and business activities (NACE Rev. 1categoriesJ and K). Nonmarket ser vices encompass public administration and defence, compulsory social security; education; health and social work; other community, social and personal service activities; private households with employed persons (NACE Rev. 1categories Lto P). Industry
encompasses mining, manufacturing and electricity, gas and water supply. Value added in constant (1995) prices grew steadily, although at different rates, in all sectors but agriculture until 2008. All sectors except nonmarket services and
agriculture have seen their value added decrease during the latest crisis. Financial services and wholesale and trade displayed higher growth rates than other activities over the whole time period. The largest declines during the crisis occurred in total industry and the construction sector, cf.Figure III.4.
Figure III.4: EU value added in1995-2010(1995=100)

160 150 140 130 120 110 100 90 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Agriculture, hunting, forestry and shing Financial intermediation and business services Construction Wholesale and retail trade
Total industry Non-market services Total
But while value added grew substantially in financial intermediation and wholesale and retail, employment also rose quickly. Labour productivity growth per person employed since1995was higher in the industrial sectors than in wholesale, retail and financial intermediation. The
fall in labour productivity during the crisis and the upward movement during the recovery reflects the procyclical pattern due to labour hoarding in industry when demand and production decreases, cf. Figure III.5.
Figure III.5: EU labour productivity per person employed in1995-2009(1995=100)

150
140
Total industry Wholesale and retail trade Financial intermediation and business services
130
120
110
100
90
80 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
61

Developments in ULC are caused by changes in labour costs per employee relative to labour productivity growth. High labour productivity growth generated more favourable unit labour costs in industry. EU ULC grew more in services than in industry due to lower productivity growth, cf. Figure III.6.
Figure III.6: EU ULC (index,1995=100)

160 150 140 130 120 110 100 90
Industry Wholesale and retail trade Financial intermediation and business services
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Taking the developments in Figure III.5into account, relative prices increased more in services sectors and relatively more in financial intermediation than in wholesale and retail relative to manufacturing. The relative price is the ratio of two price indices, the value added deflator (2000=100) of industry divided by the value added deflator (2000=100)
of market services. Between1995and2007the relative price of industrial goods declined relative to the price of market services. These evolutions may also reflect the higher level of technical change and higher degree of competition in industry including openness to trade compared to services sectors in the EU, cf. Figure III.7.
Figure III.7: EU relative prices (Industry =100)

115
Wholesale and retail trade Financial intermediation and business services

110
105
100
95
90
85
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
62
The relationship between productivity growth and changes over time in prices is shown below. There is anegative relationship, implying that relatively high rates of productivity growth are negatively related to changes in relative prices. The high rate of labour productivity growth experienced in the industrial sector has resulted
in moderate evolution of the relative price of industry output via, among other channels, its impact on ULC. These developments suggest that the industry sector has been able to provide the economy with relatively cheap (and high quality) inputs, thus contributing to overall economic growth and competitiveness, cf. FigureIII.8.
Figure III.8: Labour productivity growth vs changes in relative prices in1995-2009

3.5
Construction 3.0
Non-market services 2.5
2.0 Change in relative prices
Financial intermediation and business services
1.5
Wholesale and retail trade 1.0 Industry 0.5
0.0 Agriculture, forestry and shing -0.2 -0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8
-0.5 -1.0 -0.4
Labour productivity growth
Note: Annual average percentage changes. Source: own calculations using Eurostat data.
III.2.1 Labour productivity

Labour productivity is analysed at different levels of aggregation in this section, beginning with an overall view of labour productivity growth for the main sectors of the economy in 1995-2009. Value added and employment is used in the calculation of labour productivity growth for all sectors in the economy. Amore detailed sectoral classification, but limited to manufacturing, is used later to study labour productivity growth which is calculated using
production. This part will be used as basis for calculating unit labour costs in the next section. The effects of the latest crisis show in moderate growth rates across sectors. EU labour productivity growth in19952009was higher than3% in only afew sectors. It grew by between3.2% and5.2% in the sectors producing electrical and optical equipment, chemicals and agriculture, hunting and forestry, cf. Figure III.9.
63
EU industrial structure 2011 Trends and Performance Figure III.9: Annual growth in EU labour productivity per person employed1995-2009(%)
Electrical and optical equipment Chemicals Agriculture, hunting and forestry Transport and communication Financial intermediation Re ned petroleum Manufacturing Machinery n.e.c. Pulp, paper and publishing Health and social work Education Wood and wood products Non-metallic mineral products Basic metals and metal products Textiles and clothing Rubber and plastics TOTAL Electricity, gas and water supply Wholesale and retail trade Transport equipment Other mining Fishing Mining of energy products Food, drinks and tobacco Mining and quarrying Other services Other manufacturing Hotels and restaurants Construction Leather and footwear Real estate and business activities Public administration
-3
-2
-1
Box III.2: The interpretation and measurement of labour productivity

Labour productivity is ameasure of the amount of final goods and services produced by aunit of labour input in the course of agiven period of time. Excluding intermediates, labour productivity also measures the ability of workers to generate income given the state of technology and other inputs. Even if technology is the key determinant, changes in labour productivity cannot be automatically identified with technical change because it depends also on other inputs like capital or intermediates. For example, increasing capital per worker (capital deepening), everything else equal, will increase labour productivity even if technology is the same. In the longer term, however, technical change in abroad sense will be the only source of labour productivity growth. In turn, labour productivity growth is the only source of economic growth: the sustained growth of income per capita that has transformed so deeply our societies since the inception of the industrial revolution. This is the reason why aggregate labour productivity attracts so much attention. Inspecting sectoral labour productivity changes will also reveal important trends in our economies. For instance, the faster productivity growth of manufacturing relative to services explains why workers are increasingly employed in the services sector. Productivity differentials with other countries will also explain comparative advantages and, in the end, observed specialization patterns. Labour productivity is measured by the ratio of value added to hours worked. The use of value added (production minus intermediates) ensures that intermediates are not inputed more than once. When hours are not available, it is common to use value added per person in employment (employees plus the selfemployed). At the sectoral level, the estimate of value added is more difficult and takes longer to be published than that of production. This is the reason why in practice production is often used instead of value added when estimating productivity; particularly in shortterm assessments of latest developments (before the figure for value added is
64
available). Including intermediates, however, induce serious measurement errors that have to be kept in mind when interpreting production per unit of labour input (socalled productivity based on gross output).42
42
A more detailed picture based on production and not on value added brings further evidence concerning the dynamics of EU labour productivity growth. As explained in boxes III.1and III.2, there is adifference in measuring labour productivity in terms of value added compared to measuring productivity in terms of production. Overall productivity growth, measured as production per hours worked, for total manufacturing was positive for 20002010at2.3%. It was higher in2000-2005when it grew by2.6% than in2006-10when the growth rate was1.9%. The latest year for which data are available,2010, shows
a very strong productivity growth improvement. 43 Significant productivity gains2006-10compared to2000-05 in only were achieved in five sectors: beverages, clothing, leather, computer, electronic and optical products and other transport equipment. Developments for 2010 are especially strong in industries producing basic metals, computer, electronic and optical products, motor vehicles and machinery n.e.c., cf. Table III.1.
Table III.1:
Code
B C C10 C11 C12 C13 C14 C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27
EU labour productivity growth2000-2009(%). Production per hours worked

Sector 2000-2010
0.4 2.3 2.1 3.0 -0.7 0.9 1.5 -2.6 1.5 3.0 1.7 2.1 2.9 5.5 1.1 0.9 2.3 0.6 4.7 1.8
2000-2005
1.6 2.6 2.9 2.9 -0.7 0.9 -3.4 -5.5 2.3 3.1 2.8 2.6 3.5 6.0 1.7 2.4 3.3 2.0 2.6 2.0
2006-2010
-0.8 1.9 1.4 3.1 -0.7 1.0 6.3 0.4 0.7 2.9 0.6 1.6 2.3 4.9 0.4 -0.6 1.4 -0.8 6.8 1.5
2010
1.9 8.5 2.3 2.7 -4.2 8.4 10.9 5.3 3.9 7.3 5.0 3.5 10.8 8.4 5.8 4.0 18.8 7.6 14.3 9.7 >>>
Mining and quarrying Manufacturing Food Beverages Tobacco Textiles Clothing Leather and footwear Wood and wood products Paper Printing Refined petroleum Chemicals Pharmaceuticals Rubber and plastics Nonmetallic mineral products Basic metals Metal products Computer, electronic and optical Electrical equipment
42
See J. Durn, A digression on the notions of production and value added and the measurement of productivity, Economic Note2011-01, DG Enterprise and Industry, European Commission.
43
Available at the time of the drafting of the report.
65

Code
C28 C29 C30 C31 C32 C33
Sector
Machinery n.e.c. Motor vehicles Other transport eq. Furniture Other manufacturing Repair of machinery
2000-2010
2.1 2.2 2.3 0.2 2.5 2.7
2000-2005
2.9 2.7 1.8 0.7 2.9 3.2
2006-2010
1.4 1.7 2.8 -0.3 2.1 2.3
2010
12.0 16.6 3.8 1.4 7.5 8.1
Note: Own calculations using Eurostat data. Source: own calculations using Eurostat data.
The sectors that achieved the highest annual growth rates2000-2010were pharmaceuticals, computer, electronic and optical products, pulp and paper and beverages where
labour productivity on average grew by 3 % or more. Productivity growth in the sectors producing tobacco and leather was negative, cf. Figure III.10.
Figure III.10: Average annual growth in labour productivity2000-2010(%). Production per hours worked
Pharmaceuticals Computer, electronic and optical products Pulp and paper Beverages Chemicals Repair and installation of mach and equipment Other manufacturing Basic metals Other transport equipment Manufacturing Motor vehicles Machinery and equipment n.e.c. Food products Coke and re ned petroleum Electrical equipment Printing and publishing Wood and wood products Clothing Rubber and plastic products Textiles Non-metallic mineral products Fabricated metals Mining and quarrying Furniture Tobacco Leather
-3
-2
-1
The evolution of EU and US average annual growth rates in labour productivity, in terms of production per employed,
66
varies considerably. Labour productivity drops are distinctly more marked in the EU than in the US, cf. Figure III.11.
Figure III.11: Average annual growth in labour productivity1997-2010(%). Production per employed
15
10
-5
-10
-15 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: own calculations using Eurostat and OECD data.
III.2.2 Unit labour costs

Unit labour costs (ULC) are defined as the ratio of labour costs per employee to value added per employee. Since developments in ULC show if nominal wages increase in line with productivity, it can be regarded as ameasure of cost competitiveness. Cost competitiveness across EU sectors appears to be very variable. High EU ULC growth rates during2009are explained by production decreasing more than employment at given labour costs. This occurred in many manufacturing industries. Box III.3provides more insight into the methodology and interpretation of unit labour costs. The performance of manufacturing industries, together with mining and quarrying, in terms of ULC growth rates is compared below. The comparison aims to show which industries perform particularly well relative to aggregate manufacturing. The comparison is made for different time periods since2000to facilitate acomparison of ULC growth rates before and during the latest crisis. The period20002005 was clearly influenced by relatively high labour productivity developments and characterised by low ULC growth. Manufacturing as awhole witnessed almost
stable ULC at +0.6%. Almost all sectors, with the particular exception of leather and footwear, tobacco, clothing and other transport equipment, were characterised by increasing ULC. During the period2005-10the situation deteriorated for mining and aggregate manufacturing, and for almost all manufacturing subsectors. This is the normal situation during recessions when production falls rapidly while adjustments of labour are more sluggish. The same developments also explain why labour productivity growth decreases during recessions. Both ULC and labour productivity move procyclical. Computer, electronic and optical products, pharmaceuticals, and clothing did not see their ULC increase. A word of caution is necessary when interpreting the figures. The results in the table are strongly dependent on the chosen time period. The recovery during 2010 has increased productivity growth while, at the same time, wage increases have been modest. That lowers ULC growth rates substantially in industries such as basic metals and motor vehicles. Choosing2000-2009yields higher ULC growth rates than2000-2010since production, and consequently productivity growth, fell heavily during2009, cf. TableIII.2.
67
EU industrial structure 2011 Trends and Performance Table III.2:

B C C10 C11 C12 C13 C14 C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27 C28 C29 C30 C31 C32 C33
EU ULC annual growth in mining and manufacturing industries in2000-2010 (%)

Sector 2000-2005
4.0 0.6 0.9 0.7 6.3 1.8 4.0 7.3 0.6 0.0 0.5 1.0 0.0 -2.3 1.1 1.0 -0.1 1.1 0.1 0.5 0.6 -0.1 2.5 1.8 0.3 1.3
Code
2005-2010
7.9 1.4 1.5 0.5 5.1 0.8 -0.7 4.4 3.5 -0.3 0.4 3.5 0.3 -1.8 1.4 3.8 3.3 3.8 -2.3 1.2 3.6 1.0 1.8 3.3 0.5 0.5
2000-2009
6.2 1.8 1.4 0.6 6.1 2.4 2.4 6.7 2.8 0.5 1.0 2.4 1.3 -1.6 2.0 3.0 3.4 3.4 -0.2 1.9 3.3 2.2 2.3 3.1 1.0 1.4
2000-2010
5.9 1.0 1.2 0.6 5.7 1.3 1.6 5.9 2.0 -0.1 0.5 2.3 0.2 -2.1 1.3 2.4 1.6 2.4 -1.1 0.9 2.1 0.5 2.1 2.6 0.4 0.9
2010
3.4 -6.5 -0.4 0.2 2.2 -8.5 -5.5 -1.8 -4.7 -5.4 -4.4 1.2 -9.5 -6.3 -5.3 -3.7 -14.6 -6.3 -9.3 -8.3 -8.4 -15.2 0.9 -2.7 -5.2 -3.3
Mining and quarrying Manufacturing Food Beverages Tobacco Textiles Clothing Leather and footwear Wood and wood products Paper Printing Refined petroleum Chemicals Pharmaceuticals Rubber and plastics Nonmetallic mineral products Basic metals Metal products Computer, electronic and optical Electrical eq. Machinery n.e.c. Motor vehicles Other transport eq. Furniture Other manufacturing Repair of machinery
Note: Labour compensation data for2009in national accounts not available yet. The table above is based on quarterly data from shortterm statistics. Indices of production, gross wages and salaries have been used. Source: own calculations using Eurostat data.
The different developments in ULC caused by large swings in labour productivity growth are evident when comparing 2009with2010. Since movements in labour costs per employee are relatively small during the whole period, movements in labour productivity growth explain
the major part of the fluctuations in ULC. Decomposing further, changes in production cause most of the fluctuations in labour productivity growth. Production fell by some18% between the first quarters of 2008and2009 while employment fell by around5%, cf.Figure III.12.
Figure III.12: Recent ULC fluctuations are driven mainly by productivity developments
20 15 10 5 0 -5 -10 -15 -20
ULC Wages per employee Production per employee
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Note: Average annual growth in unit labour costs, wages per employee and productivity in the EU manufacturing industry in2001-2010(%) Source: own calculations using Eurostat data.
68
Box III.3: Unit labour costs

As presented in Figure III.12., unit labour cost growth is expressed in terms of growth rates of the ratio of labour compensation (gross wages44) per employee to labour productivity growth (production by employee). Unit labour costs are to be interpreted cautiously. Unit labour costs are not an exhaustive measure of cost competitiveness, as only labour costs are taken into account. In sectors where capital expenditure costs play alarge role, unit labour costs levels and changes over time play alesser role than in industries largely driven by labour costs.
Mining, tobacco and leather and footwear displayed very high growth rates of ULC for the whole period2000-2010.45 At the other extreme, unit labour costs declined in
computer, electronic and optical products, pharmaceuticals and pulp and paper, cf. Figure III.13.
Figure III.13: Average annual growth in unit labour costs in EU manufacturing by industry2001-10(%)
Mining and quarrying Leather and footwear Tobacco Furniture Metal products Non-metallic mineral products Re ned petroleum Other transport eq. Machinery n.e.c. Wood and wood products Clothing Basic metals Textiles Rubber and plastics Food Manufacturing Repair of machinery Electrical eq. Beverages Printing Motor vehicles Other manufacturing Chemicals Pulp and paper Computer, electronic and optical products Pharmaceuticals
-3
-2
-1
III.3 Factors of production

Improving productivity can be achieved through the mix of different factors of production. The combination of factors of production with the production technology can significantly improve the performance of firms and industries. This section looks at the inputs of labour, human capital, investment, energy and technology.
III.3.1 Labour
In the manufacturing sectors, increases in outputs have not been mirrored by equivalent increases in employment. While this has triggered higher productivity growth, it has also meant that manufacturing growth was not labour intensive. Most jobs have come from the services industries, illustrating the move from primary and secondary sectors to the tertiary
Total labour compensation usually includes not only gross wages and salaries of employees, but also other costs of labour that are paid by employers, including employers contributions to social security and pension schemes. Here only gross wages are taken into account. 45 An analysis at macroeconomic level, with data for the European Union, the United States and Japan, is presented regularly in the series of quarterly reports Price and cost competitiveness by the European Commission, DirectorateGeneral for Economic and Financial Affairs.
44
69

economy. While the average annual growth in persons employed in the EU in1995-2009was2%, it decreased on average by1% in manufacturing industries. Manufacturing employment only grew in transport equipment, rubber and plastics and other manufacturing. Strongest employment growth in service industries was seen in real estate and business activities, hotels and restaurants and other services. In these sectors employment on average grew more than in the total EU economy, cf. Figure III.14.
Figure III.14: Average annual growth of persons employed in the EU1995-2009(%)

Real estate and business activities Hotels and restaurants Other services TOTAL Health and social work Construction Wholesale and retail trade Education Transport and communication Financial intermediation Public administration Rubber and plastics Transport equipment Other manufacturing Other mining Food, drinks and tobacco Basic metals and metal products Electrical and optical equipment Electricity, gas and water supply Machines n.e.c. Manufacturing Chemicals Non-metallic mineral products Pulp, paper and publishing Wood and wood products Fishing Mining and quarrying Agriculture, hunting and forestry Re ned petroleum Mining of energy products Leather and footwear Textiles and clothing
-5
-4
-3
-2
-1
A more detailed and updated picture of the evolution of labour input in manufacturing can be provided by studying sectors at the 2-digit level.46 Hours worked is closely correlated with the number of persons employed. In the2009edition of EU Industrial Structure, the data ended
46
Due to the change from NACE Rev.1to NACE Rev.2, Table III.5and Table III.6are not completely comparable with each others.
in September2008and the slump had not yet materialised in all manufacturing sectors. This illustrates alag in how the crisis has affected the EU labour market. While production was hurt first, labour hoarding prevented astrong fall in employment. In asecond stage, the fall in demand has hit employment in sectors. The most impacted manufacturing industries (until the last quarter of 2010) were clothing, textiles, leather and tobacco, cf. Table III.3.
70
Table III.3: EU manufacturing employment and hours worked average annual growth from2000to2010
Code
C C10 C11 C12 C13 C14 C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27 C28 C29 C30 C31 C32 C33 Manufacturing Food Beverages Tobacco Textiles Clothing Leather Wood and wood products Paper Printing Refined petroleum Chemicals Pharmaceuticals Rubber and plastics Nonmetallic mineral products Basic metals Metal products Computer, electronic and optical Electrical eq. Machinery n.e.c. Motor vehicles Other transport eq. Furniture Other manufacturing Repair of machinery
Employment Sector 2000-2010

-1.9 -0.9 -2.3 -4.4 -5.2 -5.8 -3.7 -2.6 -2.4 -2.5 -2.0 -2.1 -0.6 -0.9 -2.6 -2.9 -0.8 -2.7 -1.7 -1.3 -1.2 -1.3 -2.6 -1.0 -1.1
Hours worked 2000-2010

-1.9 -0.6 -1.9 -4.5 -6.2 -6.5 -4.6 -2.5 -2.5 -2.7 -2.3 -2.2 -0.4 -0.7 -2.6 -2.8 -0.7 -2.7 -1.6 -1.1 -1.2 -1.0 -2.6 -0.8 -0.8
III.3.2 Human capital

The labour force is not homogenous but consists of individuals with different types of skills and levels of educational attainment. This heterogeneity of the labour force is often not reflected in measures of labour inputs. Human capital is as an additional factor of production, which helps to explain differences in economic growth
between countries. The purpose of this section is to present an indicator of human capital at sectoral level related to education, which, in modern economies, is a crucial component of the production process. To the extent that human capital consists of the stock of knowledge, skills and experience embodied in the labour force, acommonly used proxy for accumulated knowledge
71

is formal educational attainment. This has the advantage of being easily available information, although it is arough approximation of human capital that does not take account of the postschooling accumulation from training at the workplace and experience (learning by doing).47 In this section the indicator used is the distribution of employment in each sector by educational attainment. The International Standard Classification of Education (ISCED) classification identifies levels of education from0to6and was used to measure, in each sector, the proportion of lowskilled, mediumskilled and highskilled people, cf. Box III.4.
Box III.4:Using International Standard Classification of Education to define skill categories

The International Standard Classification of Education (ISCED) differentiates seven levels of education. - - - - - - - Level0: preprimary Level1: primary education Level2: lower secondary Level3: upper secondary Level4: postsecondary nontertiary Level5: first stage of tertiary education Level6: second stage of tertiary education.
The publication has aggregated the levels in three categories so that total employment in each sector can be broken down in three skill categories instead of seven: - Low skilled: Level0, Level1and level2 - Medium skilled: Level3and level4 - Highskilled: Level5and level6.
The skill intensity of sectors in the EU-27, according to NACE Rev.2, reveals acontrasting picture as far as manufacturing sectors are concerned. The pharmaceutical industry is the manufacturing sector that stands out most in the EU, with about half the employed having atertiary level of education (high skill). The educational sector has the highest proportion of highly qualified staff. Two thirds of people working in this sector are highly qualified. This sector is followed by the professional, scientific and technical activities (60% of high skilled) and the information and communication sector (54% of high skilled). It is closely followed by certain services industries: the financial and insurance activities, human health and social work as well as art and entertainment and creation. Financial and insurance activities is also the sector where the
proportion of lowskilled is the smallest compared to any other. Coke and refined petroleum, computer, electronic and optical products, other transport equipment, the chemical and the machinery industry all have at least one quarter highly skilled employees. At the other end of the scale are the sectors where low levels of education prevail, defined as more than30% of the workforce: leather, textiles, wood, and wearing apparel. Other sectors from other transport equipment to paper products are in an intermediate position, with asimilar share of high and low education attainment. In interpreting these figures the meaningful indicator should be the flow of services from the human capital stock, which is related to the utilisation rate of the human capital stock, rather than the capital stock itself, cf. Figure III.15.
47
For adiscussion of proxies for human capital in empirical studies, see Greiner, Semmler, and Gong (2005). On different ways of measuring the stock of human capital, including adiscussion on the limitations of educational attainment as aproxy for human capital, see OECD (1998).
72
Figure III.15: Employment by educational attainment in the EU-27in2009

High
Agriculture and forestry Leather and footwear Clothing Wood and wood products Furniture Accomodation & food Textiles Food Metal products Construction Transportation & storage Non-metallic mineral products Paper Basic metals Rubber and plasticss Wholesale and retail trade Mining and quarrying Printing Administration Repair of machinery Other manufacturing Electrical eq. Tobacco Motor vehicles Beverages Machinery n.e.c. Other services activities Chemicals and chemical products Other transport eq Real Estate activities Electricity and gas Cmputer, electronic and optical Re ned petroleum Arts & entertainment Human health and social work Financial & insurance activities Pharmaceuticals Information Extraterritorial organisations and bodies Professional, Scienti c and Technical activities Education
Medium
Low
10
20
30
40
50
60
70
Source: calculated using Eurostats labour force survey data.
Apart from the relevance of human capital when analysing growth and growthrelated issues, the educational level of the labour force is important for assessing competitiveness, particularly in an international context. By encouraging the adoption and development of technology and ideas, human capital makes enterprises and sectors competitive. Labourintensive sectors, characterised by loweducation employment, may be particularly sensitive to competition from lowwage developing countries. Examples of manufacturing sectors in this situation are wearing apparel, textiles, furniture and other manufacturing, and fabricated
metal products, which also exhibit poor performance in external trade in terms of the revealed comparative advantage index (see Chapter V). In contrast, chemicals, the manufacturing sector with the highest component of higheducation employment (33%), and also characterised as capitalintensive, ranks highly in revealed comparative advantage. It is worth emphasising that unit labour costs, and not merely wage differences, is the relevant indicator for assessing cost competitiveness, and that gains from trade, for both high- and lowwage countries, are determined by comparative, rather than absolute, advantages.
73
III.3.3 Gross fixed capital formation

Capital formation increases production capacity and can contribute to the competitiveness of firms and sectors by increasing labour productivity. Capital goods inject technology, innovation and intangibles (e.g. software) into the production process, and facilitate change and reorganisation. In addition, investment decisions are forwardlooking and, therefore, closely linked to the medium- and longterm expectations of the sector. This section presents three indicators related to investment. The first is an indicator which relates investment to value added, the second refers to investment growth, and the third is aproxy for capital intensity based on investment flows.
The investment ratio is defined as the ratio of gross fixed capital formation (GFCF) to value added.48 There is arelationship between the sectors where large companies dominate (Figure II.7) and the sectors with the largest investment ratios. Apart from the real estate and business activities sectors, those with the highest investment intensities are also the top sectors as far as large companies are concerned (above250employees): electricity, gas and water supply, transport and communication, mining and quarrying and refined petroleum. With the exception of afew sectors, the investment ratios have been quite stable over time. The crisis is evident as investment ratios drop in almost all sectors during2009, cf. Table III.4.
Table III.4:
Code
A B C D DA DB DC DD DE DF DG DH DI DJ DK DL DM DN E F
EU-22investment ratios in2005-2009

Sector 2005
0.33 0.14 0.24 0.16 0.17 0.11 0.09 0.18 0.16 0.24 0.15 0.16 0.20 0.14 0.11 0.13 0.22 0.12 0.32 0.09
2006
0.34 0.15 0.31 0.16 0.18 0.12 0.10 0.19 0.16 0.27 0.16 0.16 0.21 0.15 0.11 0.13 0.20 0.13 0.35 0.09
2007
0.34 0.18 0.36 0.17 0.19 0.13 0.10 0.20 0.16 0.35 0.18 0.18 0.22 0.16 0.11 0.14 0.20 0.14 0.37 0.09
2008
0.40 0.18 0.35 0.16 0.19 0.12 0.10 0.21 0.14 0.30 0.18 0.17 0.24 0.16 0.12 0.12 0.19 0.12 0.36 0.09
2009
0.35 0.17 0.31 0.14 0.15 0.10 0.08 0.16 0.12 0.39 0.16 0.12 0.24 0.16 0.11 0.11 0.19 0.08 0.32 0.07 >>>
Agriculture and forestry Fishing Mining and quarrying Manufacturing Food, drinks and tobacco Textiles and clothing Leather and footwear Wood and wood products Pulp, paper and publishing Refined petroleum Chemicals Rubber and plastics Nonmetallic mineral products Basic metals and metal products Machinery n.e.c. Electrical and optical equipment Transport equipment Other manufacturing Electricity, gas and water supply Construction
48
The aggregate consists of BE, CZ, DK, DE, IE, ES, FR, IT, CY, LT, LU, MT, HU, NL, AT, PL, PT, SI, SK, FI, SE and UK. Netherlands is not included in the manufacturing sector DC: Textiles and Lithuania is not included in DF: Refined petroleum.
74
Code
G H I J K L M N O
Sector
Wholesale and retail trade Hotels and restaurants Transport and communication Financial intermediation Real estate and business activities Public administration Education Health and social work Other services
2005
0.13 0.12 0.34 0.10 0.42 0.27 0.09 0.10 0.25
2006
0.13 0.13 0.35 0.11 0.43 0.27 0.09 0.10 0.27
2007
0.13 0.12 0.37 0.10 0.44 0.28 0.09 0.11 0.28
2008
0.12 0.12 0.38 0.12 0.40 0.27 0.09 0.10 0.28
2009
0.10 0.09 0.34 0.10 0.33 0.26 0.08 0.08 0.25
Total
0.23
0.23
0.24
0.24
0.24
Note: The investment ratio is defined as the ratio of gross fixed capital formation (GFCF) to value added. Source: own calculations using Eurostat data.
The second investment indicator is growth in gross fixed capital formation (GFCF). When analysing the development over time, it should be kept in mind that capital intensive sectors need to invest more than other sectors to maintain production and that significant investments are necessary
to replace old buildings, machinery and equipment. The evolution between 1995and2009 shows that services sectors in general have invested more than manufacturing sectors, cf. Figure III.16.
Figure III.16: EU GFCF growth rates based on selected countries in1995-2009

Mining and quarrying Re ned petroleum Construction Real estate and business activities Transport and communication Other services Health and social work All Branches Wood and wood products Wholesale and retail trade Basic metals and metal products Public administration Hotels and restaurants Education Agriculture and forestry Chemicals Electrical and optical equipment Machinery n.e.c. Other manufacturing Transport equipment Rubber and plastics Electricity, gas and water supply Financial intermediation Manufacturing Non-metallic mineral products Food, drinks and tobacco Fishing Pulp, paper and publishing Leather and footwear Textiles and clothing
-4
-2
75

The ranking of the sectors above may differ considerably from year to year due to the highly cyclical behaviour of GFCF. This can be illustrated for the manufacturing sector transport equipment. Annual growth rates of GFCF in fixed prices are shown for France, Germany, Italy and Spain; especially volatile is the French series. The effect of the crisis on the investments is obvious, cf. Figure III.17.
Figure III.17: Annual growth rates of GFCF in manufacture of transport equipment in France, Germany, Italy and Spain1995-2009
40 30 20 10 0 -10 -20 -30 -40 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Spain Germany
Italy France
Capital intensity is an indicator that can be used to characterise the technology of sectors. It is useful not only for descriptive purposes, but also as determinant of industry conditions and behaviour. High levels of investment can operate as abarrier to entry, imply ahigher degree of risk, and influence cost structures and price strategies of firms. Though capital intensity should be measured as the stock of capital per person employed, a proxy is used in this section, namely the ratio of investment in tangible assets to the number of persons employed. The calculation of the indicator is based on2005,2006and2007data. The values presented correspond to the average of these three years. The data refer to EU-27and the coverage by industry, which goes up to three digits of NACE Rev. 1, encompassing arange of sectors from mining and quarrying to market services. In afew cases, due to lack of observations, estimations were needed to complete the table.
This is not a strict indicator of capital stock per person employed but of the investment flow per person employed. Adrawback is that investment is highly cyclical and therefore the results must be interpreted as an approximation, although the cyclical effect is partially offset by taking average values over three years. The sectors that operate with relatively high levels of capital intensity are amix of utilities, manufacturing and services sectors. Conversely, apart from wholesale and retail, all medium investment intensity sectors are in manufacturing. And, logically, the manufacturing sectors with the lowest investment intensity (leather, textiles) are labour intensive and face the strongest competition from low cost countries, cf. TableIII.5.
Table III.5:
Code
E DF C I DG K
EU investment intensity. Average2005-07

Sector
Electricity, gas and water supply Refined petroleum Mining and quarrying Transport and communication Chemicals Real estate and business activities
Million /1000persons
49.0 43.1 29.1 14.3 14.2 13.3 >>>
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Chapter III Drivers of Sector Growth and Competitiveness Code

DM DI DA DH DE DJ DL DD DK G DN F H DB DC
Sector
Transport equipment Nonmetallic mineral products Food, drinks and tobacco Rubber and plastics Pulp, paper and publishing Basic metals and metal products Electrical and optical equipment Wood and wood products Machinery n.e.c. Wholesale and retail trade Other manufacturing Construction Hotels and restaurants Textiles and clothing Leather and footwear
Million /1000persons
10.2 9.5 7.5 7.0 6.9 6.5 5.7 5.4 4.8 4.7 4.0 3.8 3.8 2.5 2.1
III.3.4 Energy intensity

Energy intensity is defined as the value of the purchases of energy products used as fuel in the production process of the sector relative to the value of production and value added respectively. More precisely, this excludes the energy products used as intermediate inputs to be transformed into final products, such as crude oil used to produce refined oil products in the coke and oil refining sector.
Quite a few sectors in which the EU has become less competitive textiles, leather or clothing are relatively energy intensive. But also, some sectors where the EU is performing well compared to the rest of the world (ChapterV) are more energy intensive, namely pulp and paper, nonmetallic mineral products and chemicals, cf.Table III.6.
Table III.6:
Code
E DJ27 DE21 DF23 DI26 DG24 DB17 DN37 DD20 DH25 DA15 C DC19 DB18 DJ28 F DN36 DM34 DK29 DL31 DM35 DL32 DE22 DL33 DL30 DA16
EU energy intensity. Average2005-07

Sector
Electricity, gas and water supply Basic metals Pulp and paper Refined petroleum Nonmetallic mineral products Chemicals Textiles Recycling Wood and wood products Rubber and plastics Food and drink Mining and quarrying Leather and footwear Clothing Metal products Construction Furniture; other manufacturing Motor vehicles Machinery n.e.c. Electrical machinery Other transport eq. Radio, TV & communic. eq. Printing and publishing Scientific and other instruments Office machinery Tobacco
Energy/production (%)
12.0 5.6 5.9 1.6 6.1 3.1 3.2 2.3 2.4 2.5 1.9 2.4 1.4 1.4 1.6 1.3 1.2 0.7 0.9 0.9 0.7 0.7 0.9 0.7 0.3 0.3
Energy/VA (%)
43.8 24.6 21.7 19.2 17.3 10.7 10.5 9.6 8.0 7.7 7.6 5.8 5.3 4.8 4.5 3.9 3.7 3.5 2.8 2.8 2.6 2.5 2.2 1.7 1.6 1.6
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III.3.5 Technology
This section presents indicators describing the technology in EU industries from different aspects. The indicators R&D expenditures, patenting and developing of new or improved products represent different stages of the R&D&I process. While there is a relationship between these indicators, there is no onetoone correspondence.
Expenditures on R&D are indicators on inputs in knowledge production. Patent statistics are used to calculate output indicators of knowledge production. Having apatent does not, however, necessarily mean that the patenting firm will be able to market aproduct. Nor does anew product necessarily mean that there is a patent preceding its commercialisation. Indicators reflecting the different stages from R&D to new products are covered in Box III.5below.49
Box III.5: Using indicators to assess innovation performance across sectors

In this publication, the approach is specifically sectoral and therefore uses only the indicators linked to EU policies that will provide acrosssector view of innovation inputs and outputs. The indicators chosen are R&D expenditure and number of patents; they are the most commonly used, but present certain biases that are discussed later in this box. They tend to estimate manufacturing better than services research activities. In brief, innovation corresponds to four different categories of progress: - product innovation - process innovation - market innovation - organisational innovation There are different types of indicators that can be used to capture innovation. Some will typically quantify inputs while others will measure results of innovation. The various types of indicators are each better suited to measuring certain types of innovation (product, process, market, and organisation). Input indicators for innovation performance Research and development (R&D) is one among many activities that may be carried out in an innovation process. R&D comprises basic research, applied research and experimental development. The indicators are usually either R&D expenditure spending or number R&D personnel. In a knowledgedriven economy, R&D expenditure is not the only sign of innovation. Other types of measure can represent inputs that are supposed to lead to progress. Expenditures on software, training, organisation, etc. also quantify the innovation effort. The R&D indicator does not capture innovations in service activities very well. Services innovations often involve software applications and research in social sciences that are not properly accounted for in R&D expenditure surveys. Such surveys50 focus more on technological R&D than on social science R&D.51 As this publication focuses on R&D expenditures, it reflects the measurement of innovation in manufacturing better than innovation in services. Countries follow different practices in their national surveys when it comes to allocating R&D expenditures of large, multisector enterprises to the different economic sectors. Similar R&D expenditure can be categorised in different industries across countries. Output indicators for innovation performance There are different ways to mark the outcome of innovation, for example by submitting apatent, creating anew trademark, publishing an article or delivering new products to the market.
See OECD (2007) for amore detailed discussion of different indicators of R&D and innovation. To understand the methodology behind R&D surveys, see OECD (2002). 51 For more information on innovation in services see Miles (2007). For an alternative source of sectoral companybased survey see the 2008EU industrial R&D investment European Commission (2008).
49 50
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- Patent statistics are relevant to the extent that innovations can benefit from patents. The first drawback of this indicator is that certain types of innovation cannot be patented. For example, the patenting of software innovations is not the same in the EU and in the US. Therefore industry comparison between EU and extraEU countries is not always straightforward. Second, the quality of patents is not assessed. Many companies may apply for patents for strategic reasons, without bringing actual innovations onto the market or into production. - Trademark data, as the results of innovation, are abetter proxy for organisational and marketing innovations. - The number of publications in aresearch domain can be agood proxy to represent ideas creation. Nonetheless, there are difficulties in comparing this type of output across sectors. - New or significantly improved products on the market On the whole, there are certain innovations, such as organisational ones, that will be very difficult to assess expost from aqualitative and quantitative point of view. The link between input and output Eventually, research and development efforts will lead to an increase in the stock of knowledge. This knowledge will turn into new applications and new products. An output to input ratio provides aconcrete measure of R&D performance. The ratio of patents to employment in different sectors is used below. The measure is denoted byPAT1. Countries follow different practices in their national surveys when it comes to allocating R&D expenditures of large, multisector enterprises to the different economic sectors. Similar R&D expenditure can be categorised in different industries across countries. Output indicators for innovation performance There are different ways to mark the outcome of innovation, for example by submitting apatent, creating anew trademark, publishing an article or delivering new products to the market. - Patent statistics are relevant to the extent that innovations can benefit from patents. The first drawback of this indicator is that certain types of innovation cannot be patented. For example, the patenting of software innovations is not the same in the EU and in the US. Therefore industry comparison between EU and extraEU countries is not always straightforward. Second, the quality of patents is not assessed. Many companies may apply for patents for strategic reasons, without bringing actual innovations onto the market or into production. - Trademark data, as the results of innovation, are abetter proxy for organisational and marketing innovations. - The number of publications in aresearch domain can be agood proxy to represent ideas creation. Nonetheless, there are difficulties in comparing this type of output across sectors. - New or significantly improved products on the market On the whole, there are certain innovations, such as organisational ones, that will be very difficult to assess expost from aqualitative and quantitative point of view. The link between input and output Eventually, research and development efforts will lead to an increase in the stock of knowledge. This knowledge will turn into new applications and new products. An output to input ratio provides aconcrete measure of R&D performance. The ratio of patents to employment in different sectors is used below. The measure is denoted byPAT1.
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EU industrial structure 2011 Trends and Performance III.3.5.1 R&D

In2007, R&D represented1.85% of EU GDP in comparison with2.67% in the US, the gap mainly explained by private investment in R&D. Looking at the sectoral allocation and not only at the overall amount of R&D injected in the respective economies brings additional insight into R&D intensity differences. To analyse R&D expenditure, an aggregate was formed (an EU sample of17countries) representing more than80% of total R&D expenditure in the EU. The different graphs focus on the gross domestic expenditure on R&D (GERD) financed by industry; they do not reflect the sectoral R&D effort by governments. In order to estimate and compare the intensity of innovation efforts in different sectors, R&D expenditures were divided by value added generated in the sector. Among the more R&D intensive sectors, there is only one sector where the EU significantly outperforms the US: chemicals. Certain sectors may contribute to alesser extent to the overall innovation effort because of their small size. Nonetheless, they may still be very R&D intensive compared to the output generated in the sector. One illustration is the office, accounting and computing machinery sector, which represents less than 1 % of total value added in the EU in2006but has one of the highest R&D intensities, as high as30% of value added, cf. Figure III.18.
Figure III.18: EU and US R&D expenditure as shares of value added in sectors in2006(%)
EU Radio, TV & communic. eq. Pharmaceuticals Other transport eq. Motor vehicles Scienti c and other instruments O ce machinery Chemicals Total manufacturing Machinery nec Electrical machinery Rubber and plastics Re ned petroleum Basic metals Non-metallic mineral products Food, beverages and tobacco Textiles, leather and footwear Other manufacturing Metal products Wood, paper, printing, publishing Electricity, gas and water supply Total services Construction 0 5 10 15 20 25 30 35 40 45 50
US
Note: The EU is represented by17countries: Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Poland, Portugal, Spain, Sweden and the UK. The industries are classified according to ISIC Rev.3.1. Source: own calculations using OECD data.
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In certain sectors an increase in EU R&D expenditure over time may be asign of catchup. Some manufacturing sectors that exhibit above average R&D intensity nonetheless saw their R&D intensity increase between1997and2007. This is the case
for Radio, TV and communication equipment, pharmaceuticals and motor vehicles. Conversely, R&D intensity decreased during1997-2006in other transport equipment and office, accounting and computers, cf.FigureIII.19.
Figure III.19: EU R&D expenditure as shares of value added in sectors in1997and2006(%)

2006 1997
Radio, TV & communic. eq. Pharmaceuticals Other transport eq. Motorvehicles Scienti c and other instruments O ce machinery Chemicals Total manufacturing Machinery nec Electrical machinery Rubber and plastics Re ned petroleum Basic metals Non-metallic mineral products Food, beverages and tobacco Textiles, leather and footwear Manufacturing n.e.c. Metal products Wood, paper, printing, publishing Electricity, gas and water supply Total services Construction
10
15
20
25
30
35
Note: The EU is represented by14countries: Austria, Czech Republic, Denmark, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain. The industries are classified according to ISIC Rev.3.1. Source: own calculations using OECD data.
III.3.5.2 Patents
Patent statistics are used to calculate indicators for the output side of knowledge production and, despite the
drawbacks of this indicator,52 the information is of interest. Various aspects make patents particularly useful as aproxy
52
Griliches (1990) discusses anumber of issues related to patents, including the advantages and drawbacks. See also Pavitt (1985), Silverman (2002) and Griliches (1984).
81

for technology and technological developments. Patent statistics refer to the output of the research process undertaken by firms and sectors. They provide information on alarge number of sectors and technologies and they permit good coverage of developments over time, which is particularly interesting. As these data are available for alarge number of countries, it is possible to calculate the relative performance of the EU, or any other country or region relative to the world. Two sectoral indicators based on the number of patents are used in this section. The first indicator, PAT1, compares patent intensity across industrial sectors in the EU. It is computed as the ratio of patents to employment in asector, relative to the same ratio for total manufacturing: using data from both the European Patent Office (EPO) and the US Patent Office (USPO). The second indicator, PAT2, compares the number of patents in agiven sector in the EU relative to total patents in the EU with the number of patents in the same sector in the world relative to total patents in the world. It is therefore, an indicator of the EU sectors relative performance in patenting. It is defined by the followingratio:
where: PATi,EU: number of patents filed by EU sector i PAT T,EU: number of patents filed by EU all sectors PATi,W: number of patents filed by world sector i PAT T,W: number of patents filed by world all sectors Values greater than1indicate that the sector has apatent specialisation relative to the rest of the world.53 As PAT1reflects the number of patents in asector relative to employment, it measures patenting intensity across sectors.54 As was the case with R&D, this varies substantially across sectors, from the highest values in two ICT sectors (office machinery and telecommunications equipment) to the nearnegligible value for clothing, wood and wood products, and printing and publishing, cf. Figure III.20.
where: PATi,EU: patents filed by EU sector i PAT T,EU: patents filed by EU all sectors Li,EU: employment in EU sector i LT,EU: total employment in the EU Values greater (lower) than 1 indicate that the sector is more (less) patentintensive than the whole economy (and therefore than all other sectors). The indicator is calculated
Some studies normalise the specialisation indices such that the specialisation indices are bounded between -1and1. Afigure with normalised indices looks identical as figure III.17though rescaled. 54 The ranking is based on the data from EPO.
53
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Figure III.20: EU-27sectors by patent intensity (averages in2005-06and2006-07)

USPTO 2005-06
O ce machinery Telecommunication equipment Watches and clocks Pharmaceuticals, medicinal chemicals and botanical prod. Basic chemicals Radio and TV receivers Electronic valves and tubes Optical instruments, photographic equipment Soap and det., cleaning and pol. prep., perfumes and toilet prep. Other chemical products Industrial process control equipment Re ned petroleum Medical and surgical equipment Pesticides and other agrochemical products Lighting equipment and electric lamps Man-made bres Domestic appliances n.e.c. Other special purpose machinery Motor vehicles Agricultural and forestry machinery Other transport eq. Instruments for measuring, testing and navigating Machine tools Accumulators and batteries Mchinery for the production and use of mech. power Tobacco Other general purpose machinery Electricity distr. and control app., insulated wire and cable Basic metals Paints, varn. and similar coat., printing ink and mastics Weapons and ammunition Pulp and paper Rubber and plastics Non-metallic mineral products Furniture; other manufacturing Electric motors, generators and transformers Metal products Electrical equipment n.e.c. Food and drink Textiles Leather and footwear Printing and publishing Wood and wood products Clothing
EPO 2005-2006
10
15
20
25
The second indicator, PAT2 compares the performance of EU sectors with the same sectors in the world. The indicator measures specialisation in the patenting process in the country under analysis. The results for this indicator show that the EU performs slightly better than the world
in a number of sectors. However, the EU specialisation in patenting is lower than the world average in arange of R&Dintensive sectors such as ICT industries and pharmaceuticals cf. Figure III.21.
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EU industrial structure 2011 Trends and Performance Figure III.21: EU sectors by patent performance relative to the rest of the world in2004-06
USPTO
Agricultural and forestry machinery Wood and wood products Metal products Machine tools Motor vehicles Leather and footwear Machinery for the production and use of mech. power Rubber and plastics Other special purpose machinery Domestic appliances n.e.c. Clothing Other general purpose machinery Furniture; other manufacturing Weapons and ammunition Other transport eq. Tobacco Industrial process control equipment Electric motors, generators and transformers Basic metals Non-metallic mineral products Paints, varn. and similar coat., printing ink and mastics Electricity distr. and control app., insulated wire and cable Pulp and paper Textiles Lighting equipment and electric lamps Food and drink Mineral oil re ning and nuclear fuel Other chemical products Man-made bres Basic chemicals Soap and det., cleaning and pol. prep., perfumes and toilet prep. Instruments for measuring, testing and navigating Pesticides and other agrochemical products Printing and publishing Electrical equipment Pharmaceuticals, medicinal chemicals and botanical prod. Optical instruments, photographic equipment Electronic valves and tubes Telecommunication equipment O ce machinery Medical and surgical equipment Radio and TV receivers Watches and clocks Accumulators and batteries
EPO
0.0
0.5
1.0
1.5
2.0
2.5
III.3.5.3Innovation
Innovation activities aim to produce new products. By engaging in such and activities firms try to commercialise products bringing something new and/or improved to customers. Success often provides the firm with an advantage in that the product is different from other existing products. This differentiation of the product reduces the demand elasticity the firm faces and makes it less reliable on costs and prices to compete. Manufacturing industries engage relatively more in innovating activities than services. Firms in industries
84
producing pharmaceuticals, computers and electronic products, coke and petroleum and chemicals engage more in innovation than firms in other industries.55 Services industries where innovating enterprises are relatively common are information and communication and financial and insurance activities, cf. Figure III.22.
55
The figures, calculated as averages for different sectors in the Member States, should be taken with some caution. The dataset suffers from lack of observations for a number of countries and industries. The average for Accommodation is based on6observations, real estate activities and administrative and support service activities on7observations, tobacco is based on10observations, construction on11observations coke and refined petroleum on13observations.
Figure III.22: Innovative enterprises as apercentage of all enterprises in the EU-27in2008(%)

Pharmaceuticals Computer, electronic and optical Re ned petroleum Chemicals Tobacco Machinery n.e.c. Beverages Electrical equipment Information & communication Basic metals Rubber and plastics Financial & insurance activities Motor vehicles Other manufacturing Manufacturing Other transport eq. Electricity and gas Non-metallic mineral products Metal products Water supply Food Textiles Paper Printing Furniture Repair of machinery Professional, Scienti c and Technical activities Leather and footware Wood and wood products Clothing Wholesale and retail trade Transportation & storage Real estate activities Construction Administration Accomodation & food 0 10 20 30 40 50 60 70 80
Source: own calculations based on Eurostat data.
Successful outputs of innovating activities are new or improved products brought to the market. ICT related manufacturing and services industries seem to be more successful in developing new and/or improved products
than other industries. On the whole, manufacturing firms seem more successful than services firms. There are only two services industries among the top 20 sectors, cf.FigureIII.23.56
56
The figures should be taken with some caution for the reasons mentioned in the previous footnote. It should be noted that there are no observations for the UK.
85
EU industrial structure 2011 Trends and Performance Figure III.23: Enterprises which introduced new or improved products to the market as ashare of all enterprises engaged in innovation activity in the EU-27in2008(%)
Computer, electronic & optical Information and communication Chemicals Other manufacturing Motor vehicles Other transport eq. Textiles Electrical equipment Re ned petroleum Machinery n.e.c. Pharmaceuticals Rubber and plastic Tobacco Beverages Professional, scienti c and technical activities Food Leather and footwear Manufacturing Furniture Repair of machinery Clothing Wholesale and retail trade Non-metallic mineral products Basic metals Paper Metal products Financial and insurance activities Wood and wood products Administration Water supply Printing Construction Transportation & storage Accommodation and food Electricity and gas Real estate activities 0 10 20 30 40 50 60
Source: own calculations based on Eurostat data.
III.4 Demandside drivers: asectoral picture

Fluctuations in demand differ among sectors in both size and timing of fluctuations. Some sectors produce products which are relatively insensitive to variations in income and prices while others are more affected by the variations. The latter were also impacted earlier by both slowdowns and recoveries. Analyses of fluctuations in consumption and investment demand can provide useful information about sectoral performance.
III.4.1 Private Consumption

Consumption fluctuates over time for different reasons: demographic changes, changes in preferences for services and goods, fluctuations in income and relative prices. While consumption patterns are extremely stable for certain goods and services, they appear less so for others.
86
Private consumption of services has continued to increase at the expense of private consumption of goods since1980. The share of services consumption was 30 percentage points larger than the share of goods consumption in1980in constant terms; and the difference in the shares increased to 48 percentage points in 2009. In spite of the increase in relative prices in services, this trend can be explained by changes in preferences and by income elasticities of demand. Increasing living standards and incomes lead to higher consumption of products with high income elasticities at the expense of products whose income elasticities are lower, cf. Figure III.24.57
57
The previous publication EU Industrial Structure2007 Challenges and opportunities (IV.3 Private consumption) indicated that income elasticities of demand are much higher for services sectors than for goods.
Figure III.24: Shares of goods and services in private consumption in constant and current prices in seven EU countries from1980to2009
80
70
60
Services (Constant) Services (Current) Goods (Constant) Goods (Current)
50
40
30
20
10
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
Note: The seven countries presented are Austria, Denmark, Finland, France, Italy, Netherlands and United Kingdom. Goods sectors include food and nonalcoholic beverages, alcoholic beverages, tobacco and narcotics, clothing and footwear, furnishings, household equipment and routine maintenance of the house. Services sectors include health, transport, communications, recreation and culture, education, restaurants and hotels, miscellaneous goods and services, housing, water, electricity, gas and other fuels. Source: calculated using Eurostat data.
Asubstitution of consumption of goods for services has taken place between 1980and2008. Breaking down private consumption into large categories in seven countries shows that food and nonalcoholic beverages have fallen to amuch lower share of total consumption, from 19 % to 12 %, while the share of housing and utilities in total private consumption has risen from17% to24% between1980and2009. Changes in the shares of consumption expenditures across categories may reflect changes in the level of income (income effects), changes in relative prices (substitution effects) or government interventions. First, over long periods of time income typically increases significantly so that the preference over different categories changes because households tend to shift consumption from basic to luxury categories. As an example, the increase in the share of expenditures in health services or housing is very likely reflecting an increasing consumption of services that can be seen as relatively luxurious; the kind of commodities households tend to consume more of the richer they are. Second, relative
changes in technology and/or trade patterns can change relative prices, rendering some commodities cheaper than others. What will happen with the share in consumption expenditures will depend on whether the induce changes in quantities are more or less than proportional to the price change. For example, the increase in the share communication services is probably to a large extent reflecting adrop in the price of communications driving a more than proportional increase in consumption. In contrast, large increases in productivity are probably behind the drop in the relative price of food, and hence the drop in its share in consumption expenditures compared to, say, services where productivity grows more slowly. Similarly, trade probably explains the drop in the relative price of clothes and its subsequent drop in the share of expenditures because the eventual increase in consumption does not compensate for the drop in prices. Finally, cultural changes due to public awareness campaigns, legal constraints and taxes may explain other changes like the drop in the share of alcoholic beverages and tobacco cf. Figure III.25.
87
20
09
EU industrial structure 2011 Trends and Performance Figure III.25: Private consumption shares (current prices) in seven EU countries in1980and2008
25
1980 2008
20
15
10
s g s h n y, ls d re lic rt n ld d o lt it ls in ar u o , o te o o o s ti an lic s ic ue h ges d lt p o ti h ine e o ice ea thwe a r s o u t o d a h f c e g H c c r o h ge us ut us lc a n cs Cloot u ic s rv d an d le e A ver o a ti n u Fo lcoera ho ro ho Ed Tr fo u o se an , eoth an e cc rco a e d r s e v d , d m b a a t n n e s n n n e n b n m g a th an o b at nd io lla a o ra n to in t f C at u ce h en e o , ws a e s a s g r a i i m c t n g M ec rn ip an es si R R u Fuqu en o t e in H a m
Note: The seven countries presented are Austria, Denmark, Finland, France, Italy, Netherlands and United Kingdom. Final consumption expenditure of households is classified according to consumption purpose (COICOP) for different goods and services. Source: calculated using Eurostat data.
A detailed overview of the consumption breakdown in EU-27in2008 offers insight into consumption patterns. Necessity goods account for the highest shares of total private consumption, with food, housing, catering services, clothing and electricity gas and
fuels representing in total more than 50 % of total consumption. 58 Recreational and cultural services and financial services only rank eighth and ninth respectively, cf. Figure III.26.
58
Basic needs are the goods and services that are essential to achieve acertain minimum standard of living.
88
Figure III.26: EU-27sectoral shares of private consumption in2008(% of total consumption)

Food Imputed rentals for housing Catering services Operation of personal transport equipment Clothing Electricity, gas and other fuels Actual rentals for housing Purchase of vehicles Recreational and cultural services Financial services n.e.c. Insurance Transport services Telephone and telefax services Personal care Furniture and furnishings, carpets and other oor coverings Tobacco Other recreational items and equipment, gardens and pets Audio-visual, photographic and information processing equipment Water supply and miscellaneous services relating to the dwelling Goods and services for routine household maintenance Accommodation services Alcoholic beverages Newspapers, books and stationery Medical products, appliances and equipment Out-patient services Maintenance and repair of the dwelling Non-alcoholic beverages Other services n.e.c. Education Social protection Footwear including repair Household appliances Personal e ects n.e.c. Hospital services Package holidays Household textiles Glassware, tableware and household utensils Tools and equipment for house and garden Other major durables for recreation and culture Telephone and telefax equipment Postal services 0 2 4 6 8 10 12
Note: Final consumption expenditure of households is classified according to consumption purpose (COICOP) for different goods and services. Source: own calculations using Eurostat data.
As EU standards of living are constantly improving, demand for goods and services with relatively high income elasticities have been growing faster than demand for necessity goods. EU average annual growth in constant prices has increased significantly in communication, recreation and culture and health. Telephone and telefax equipment increased by17.4% on average, followed by audiovisual, photographic and information processing equipment, telephone and telefax services and financial services n.e.c. which increased by between4.5% and10%. The differences between the EU-15and the EU-27were largest in areas where consumption grew much faster in the
EU-15than in the rest of the EU. Consumption of package holidays in the EU-15grew by50% more than in the EU27and consumption of alcoholic beverages and electricity, gas and other fuels grew in the EU-15by +0.5% while it decreased in the whole of the EU, cf. FigureIII.27.59
59
Figure III.27includes more categories of goods than FigureIII.23. Some categories are also further broken down in FigureIII.24in order to provide more information. Figure III.23 shows for examples that while consumption of alcoholic beverages, tobacco and narcotics decreased both for EU-15and EU-27, the consumption of alcoholic beverages increased in EU-15.
89
EU industrial structure 2011 Trends and Performance Figure III.27: Private consumption in EU-15and in EU-27in1996and2008(average annual percentage growth rates in constant prices)
EU 27
Telephone and telefax equipment Audio-visual, photographic and information processing equipment Communications Telephone and telefax services Financial services n.e.c. Other major durables for recreation and culture Recreation and culture Other recreational items and equipment, gardens and pets Tools and equipment for house and garden Package holidays Medical products, appliances and equipment Health Miscellaneous goods and services Out-patient services Household appliances Recreational and cultural services Imputed rentals for housing Transport services Personal care TOTAL Hospital services Goods and services for routine household maintenance Non-alcoholic beverages Accommodation services Housing, water, electricity, gas and other fuels Restaurants and hotels Catering services Education Other services n.e.c. Social protection Maintenance and repair of the dwelling Water supply and miscellaneous services relating to the dwelling Furnishings, household equipment and routine maintenance of the house Actual rentals for housing Transport Purchase of vehicles Clothing Clothing and footwear Household textiles Operation of personal transport equipment Insurance Glassware, tableware and household utensils Footwear including repair Furniture and furnishings, carpets and other oor coverings Food and non-alcoholic beverages Food Personal e ects n.e.c. Newspapers, books and stationery Electricity, gas and other fuels Alcoholic beverages Alcoholic beverages, tobacco and narcotics Postal services Tobacco
EU 15
-2
10
12
14
16
18
Note: Final consumption expenditure of households is classified according to consumption purpose (COICOP) for different goods and services. Source: own calculations using Eurostat data.
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III.4.2 Investment demand

Gross fixed capital formation (GFCF) is ameasure of the net new investment by enterprises, government and households in the domestic economy in fixed capital assets, during an accounting period. GFCF is not ameasure of total investment, as financial assets are not included. For that reason, this indicator gives a good insight into investment growth in the real economy. It represents alist of five product categories: metal products and machinery, transport equipment, construction work related to housing, construction work related to construction other than housing, and other products.
Some assets have an impact on the amount and quality of production facilities in an economy. This is the case for metal products and machinery, for construction other than housing and for transport equipment investments. Others, such as housing construction work, increase consumer welfare but do not add substantially to the productive stock of assets of the private sector. The overall EU picture in2010shows that most of the investments that have taken place benefit the production facilities of the EU. The three categories, metal products and machinery, construction other than housing and transport equipment investments, represent in total twothirds of total investment, cf.FigureIII.28.
Figure III.28: EU-27investment breakdown in2010(% of total current price)

Other products
9%
Metal products and machinery
26 %
31 %
Construction work: other constructions
9%
Transport equipment
25 %
Construction work: housing
Note: The graph intentionally does not include products of agriculture, forestry, fisheries and aquaculture. Source: own calculations using Eurostat data.
Total investment in the EU grew on average by1.1% in the EU-27and1.6% in the EU-15in1997-2010: other products was the category with the highest annual growth rate
of4%. Transport equipment and the metal products and machinery sector also witnessed substantial growth, cf.Figure III.29.
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EU industrial structure 2011 Trends and Performance Figure III.29: Investment average annual growth rate in the EU-27and EU-15:1997-2010(%)
EU 27 EU 15
Other products Metal products and machinery Transport equipment Total Construction work: other constructions Construction work: housing
-1%
0%
1%
2%
3%
4%
Note: Calculated from data expressed in constant terms (reference year2000). The graph intentionally does not include products of agriculture, forestry, fisheries and aquaculture. Source: calculated using Eurostat data.
Investment growth in other products, aheterogeneous category, displayed the strongest growth. Investment growth for the other fast growing assets, transport equipment and metal products and machinery, also show large variations between Member States. While average growth in transport equipment is around or above5% in Estonia and Sweden, it is decreasing in the Netherlands and
Portugal. Metals products and machinery investments are only decreasing in Slovakia while developments in Cyprus Estonia, and Slovenia were strong. Similarly, investment in housing construction is very buoyant in Estonia, Lithuania, Luxembourg, Slovakia and Sweden with growth rates between4.5% and8%, cf. Table III.7.
Table III.7: Growth in investment levels, average annual growth rates:1997-2009(%)

Total
Belgium Bulgaria Czech Republic Denmark Germany Estonia Ireland Spain France Italy Cyprus Latvia Lithuania Luxembourg Hungary Netherlands Austria Poland Portugal Slovenia
Transport equipment
Other products
2.0 12.2 1.8 1.0 0.9 3.6 -1.5

2.6
n.a. n.a. n.a. 1.5 n.a. 4.9 n.a.

2.8
n.a. n.a. n.a. 3.5 n.a. 5.1 n.a.

3.2
n.a. n.a. n.a. 0.7 -1.2 7.0 n.a.

1.2
n.a. n.a. n.a. -2.3 -1.0 0.8 n.a.

3.5
n.a. n.a. n.a. 6.2 6.4 19.2 n.a.

2.8
2.6 1.0
3.7
n.a. 1.1
4.4
n.a. 1.9
4.4
n.a. 0.9
2.6
5.3 3.6
3.8
n.a. 4.3
3.8
n.a. 2.0
-0.3
3.2 0.8
0.7
n.a. 2.8
1.3
4.2 -0.4
3.2
n.a. 3.4 6.1
n.a. -1.1 1.5 n.a. -1.9 3.2
n.a. 4.4 4.6 n.a. -0.5 -2.2 n.a. n.a. 0.3
n.a. 0.5 4.5 n.a. 2.2 5.2 n.a. 0.8 0.8 n.a. -4.8 1.8
n.a. 1.3 n.a. n.a. 13.5 2.4 n.a. 1.9 7.2 n.a. 4.4 5.7
>>>
92
Total
Slovakia Finland Sweden United Kingdom EU-27 EU-25 EU-15
Transport equipment
Other products
0.9 2.1 3.4 2.2

1.7
-0.2 0.8 3.3 3.5

2.7
0.4 1.0 4.8 0.3

2.6
8.1 3.2 5.8 -0.1

0.2
1.1 1.8 1.2 1.8

1.1
6.7 5.1 4.9 3.5

3.9
1.7 1.6
2.7 2.7
2.5 2.4
0.2 0.0
1.1 1.0
3.9 3.8
Note: Greece, Malta and Romania missing. Calculated from data expressed in volumes (reference year2000). The table intentionally does not include products of agriculture, forestry, fisheries and aquaculture. Source: own calculations using Eurostat data.
93
Chapter IV
International competitiveness of EU industry

This chapter analyses the international competitiveness of EU industries. The analyses are performed using trade flows to calculate indicators of competitiveness and other aspects of international trade. An analysis of international trade is important for at least two reasons. First, exports of goods and services accounted for 13.4 % 60 of EU GDP in 2009; the figure is substantially higher for some industries, which shows the importance of international markets for domestic production. Second, performance in external trade provides insight into various factors which determine trade patterns and the competitiveness of EU industries. This chapter covers trade in both goods and services and also contains asection on foreign direct investment (FDI), which is important for understanding the effect of internationalisation on European industries. The chapter is organised as follows. Section IV.1presents an overall picture of EU relative weight in world trade flows. Section IV.2is dedicated to an analysis of competitiveness from various angles. The competitiveness of EU industries is analysed using three indicators: share in world markets, relative trade balance, and revealed comparative advantage. EU Intraindustry trade is examined in section IV.3. The role of technology in international trade is analysed in section IV.4. Section IV.5analyses EU trade in intermediate goods from two perspectives, beginning with, the import dependence of foreign imports for EU exports. This is followed by analyses of EU competitiveness in intermediate goods according to abroad categorisation of goods. Finally, foreign direct investment by sector is analysed in Section IV.6together with indicators of internationalisation of R&D. share of the EU and other regions in crossborder flows of goods and services
IV.1.1 Goods
The EU-27 constitutes a large share of world trade in manufactured goods: exports originating in EU-27countries, including intraEU-27trade, accounted for40.8% of total world exports in 2009. The importance of the EU single market is illustrated by the fact that more than aquarter of total crossborder supplies of goods took place within the EU-27. Asia and North America are the two other main trade players and, together with the EU-27, accounted for about84% of total world export flows, cf. Table IV.1.61
61
IV.1 EU importance in world trade

This section provides ageneral framework for the analysis of EU competitiveness in external markets by presenting the
60
Eurostat globalisation indicators.
The regions are as follows. Other Western Europe: Iceland, Norway, Switzerland. Central and Eastern Europe: Albania, Armenia, Azerbaijan, Belarus, Bosnia Herzegovina, Croatia, Georgia, Kazakhstan, Montenegro, Rep. of Moldova, Russian Federation, Serbia, TFYR of Macedonia, Turkey, Ukraine. North America: Canada, USA. Latin America: Argentina, Bahamas, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Rep., Ecuador, El Salvador, Guatemala, Haiti, Honduras, Jamaica, Mexico, Neth. Antilles, Nicaragua, Panama, Paraguay, Peru, Suriname, Trinidad and Tobago, Uruguay, Venezuela. Middle East : Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Occ. Palestinian Terr., Oman, Qatar, Saudi Arabia, Syria, United Arab Emirates, Yemen. Asia: Afghanistan, Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, China, Hong Kong SAR, China, Macao SAR, Dem. Peoples Rep. of Korea, India, Indonesia, Japan, Kyrgyzstan, Lao Peoples Dem. Rep., Malaysia, Maldives, Mongolia, Myanmar, Nepal, Pakistan, Philippines, Rep. of Korea, Singapore, Sri Lanka, Tajikistan, Thailand, TimorLeste, Uzbekistan, Viet Nam. Oceania: Australia, New Zealand. Africa: Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Rep., Chad, Comoros, Congo, Cte dIvoire, Dem. Rep. of the Congo, Djibouti, Egypt, Equatorial Guinea, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea, GuineaBissau, Kenya, Lesotho, Liberia Libya, Madagascar, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, Somalia, South Africa, Sudan, Swaziland, Togo, Tunisia, Uganda, United Rep. of Tanzania, Zambia, Zimbabwe.
95
EU industrial structure 2011 Trends and Performance Table IV.1: Manufactured products export world trade matrix in2009. Shares of total world exports (%)
Central Other North Latin Middle and Western Eastern America America East Europe Europe
1.7 0.0 0.1 0.2 0.1 0.0 0.2 0.1 0.0 0.0 0.1 2.5 2.1 0.1 0.6 0.1 0.0 0.0 0.6 0.4 0.0 0.0 0.0 3.7 3.0 0.3 0.2 4.0 2.4 0.2 5.0 2.3 0.2 0.1 0.4 15.5 0.9 0.1 0.0 2.3 1.1 0.0 1.3 0.5 0.0 0.0 0.1 5.7 1.2 0.1 0.3 0.5 0.1 0.1 1.5 0.5 0.4 0.0 0.1 3.8
Origin
EU-27
Asia
China
India
Oceania
Africa
World
EU-27 Other Western Europe Central and Eastern Europe North America Latin America Middle East Asia China India Oceania Africa World
27.0 1.9 2.2 2.3 0.7 0.1 4.9 2.3 0.3 0.1 0.7 40.0
3.2 0.3 0.6 2.5 0.8 0.1 15.2 4.6 0.5 0.9 0.4 24.0
1.1 0.1 0.2 0.8 0.4 0.0 4.2 0.0 0.1 0.3 0.2 7.3
0.4 0.0 0.1 0.2 0.1 0.0 0.7 0.3 0.0 0.1 0.1 1.6
0.3 0.0 0.0 0.2 0.0 0.0 0.8 0.2 0.0 0.1 0.0 1.5
1.4 0.0 0.1 0.3 0.1 0.0 1.0 0.5 0.1 0.0 0.4 3.3
40.8 2.8 4.2 12.4 5.4 0.6 30.4 11.4 1.6 1.3 2.1 100.0
Note: The matrix is calculated from export data. It refers exclusively to manufactured products, so it does not include crude oil and other products from mining and quarrying. The values in each cell are percentage shares of total world trade. The main diagonal in the matrix (shaded cells) represents intraregion trade (e.g. exports from EU countries to EU countries). The matrix shows two countries separately, China (China and Hong Kong; intraChina trade set to zero) and India, which are also included in Asia. Each cell shows the share of total world exports which are exported from an exporter to acertain destination. For example, Asian exports to EU-27accounts for4.9% of total world exports and total Asian exports accounts for30.4% of total world exports. Source: own calculations using Comtrade database.
In2009, the main destination of EU-27exports to nonEU countries were Asia, North America, and Central and Eastern Europe, which together amounted to more than60% of
total EU-27exports. While China was alarge destination for Asian, exports, the Chinese market only accounted for7.8% of EU-27exports, cf. Table IV.2.62
62
The Chinese market is also an important market for exporters in the Middle East. However, exports from this region only constitute1.4% of total world exports.
96
Chapter IV International competitiveness of EU industry
Table IV.2:
Manufactured products world trade matrix, export destination in2009(%)

Partner Central Other and North Latin Middle EU-27 Western Eastern America America East Europe Europe Asia China India Oceania Africa World
EU-27 Other Western Europe Central and Eastern Europe North America Latin America Reporter Middle East Asia China India Oceania Africa
0.0 69.4 62.8 27.7 15.9 22.6 32.0 20.1 21.8 10.8 40.6
12.0 0.0 4.0 2.6 2.3 3.5 1.6 0.5 0.6 0.3 4.1
15.2 2.2 0.0 1.8 0.8 4.2 4.0 3.4 1.7 0.3 2.3
22.0 9.8 4.5 0.0 57.0 33.7 32.5 20.4 12.2 5.2 21.2
6.3 1.9 1.3 27.0 0.0 3.2 8.5 4.8 3.1 1.5 4.6
8.9 2.9 7.4 5.4 1.9 0.0 10.0 4.4 22.5 2.7 4.9
23.2 11.7 15.7 30.0 19.1 26.9 0.0 40.4 29.3 77.8 21.7
7.8 2.6 6.4 9.0 10.2 5.1 27.6 0.0 6.4 26.5 8.8
2.6 0.9 1.7 2.0 1.6 7.3 4.5 2.5 0.0 9.2 5.5
2.3 0.8 0.1 2.5 0.5 1.0 5.0 1.9 1.0 0.0 0.6
10.1 1.3 4.1 3.0 2.6 4.8 6.4 4.1 8.0 1.4 0.0
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Note: The matrix is calculated from export data. It refers exclusively to manufactured products, so it does not include crude oil and other products from mining and quarrying. Exporters are shown in rows and destination markets in columns. Each cell shows the share of total exports from an exporter to a certain destination. For example, 32% of Asian exports are destined for EU-27. The main diagonal in the matrix (shaded cells) shows that intraregional trade (e.g. exports from EU countries to EU countries) is excluded in this table. The matrix shows two countries separately, China (China and Hong Kong) and India, which are also included in Asia. Source: own calculations using Comtrade database.
When intraregional trade is not taken into account, EU-27imports came mainly from Asia (28%) and North
America (25%). Along with Asia, the EU-27occupy almost two thirds of North American imports, cf. Table IV.3.
97
EU industrial structure 2011 Trends and Performance Table IV.3: Manufactured products world import structures by origin of imports in2009(%)
Partner
EU-27 Central Other and North Latin Western Eastern America America Europe Europe Middle East Asia China India Oceania Africa
EU-27 Other Western Europe Central and Eastern Europe North America Latin America Middle East Reporter Asia China India Oceania Africa World
0.0 13.3 13.8 24.7 6.9 3.3 28.3 10.2 3.0 2.8 6.9 100.0
65.0 0.0 2.5 9.9 2.1 2.2 16.3 3.2 4.0 0.9 1.1 100.0
65.4 1.2 0.0 8.4 1.4 1.9 17.3 8.2 1.9 0.3 4.1 100.0
32.3 1.9 2.5 0.0 23.6 2.0 32.8 10.5 2.0 2.6 2.2 100.0
17.3 0.6 1.2 55.7 0.0 0.7 22.1 12.5 1.6 0.5 1.9 100.0
12.9 0.3 2.0 12.4 0.9 0.0 66.2 11.0 13.6 0.9 4.3 100.0
37.1 1.4 4.8 36.6 8.6 2.1 0.0 26.5 4.3 5.2 4.1 100.0
23.0 0.7 3.2 24.3 5.4 0.8 38.0 0.0 2.1 2.3 2.3 100.0
27.9 0.8 3.0 17.7 4.1 3.1 34.4 10.5 0.0 1.3 7.7 100.0
8.5 0.3 0.8 6.3 1.6 1.5 79.4 28.2 8.4 0.0 1.7 100.0
43.6 1.2 2.2 21.9 3.7 1.1 25.8 13.2 6.3 0.4 0.0 100.0
Note: The matrix is calculated from import data. It refers exclusively to manufactured products, so it does not include crude oil and other products from mining and quarrying. Detailed import data from India were not available for2008in the chosen trade classification (HS2007). The first column for instance shows abreakdown of EU imports from the RoW by origin: Asia has the highest share in EU imports from the RoW (28.3) followed by North America (24.7) The first row show that e.g.32.3% of North American imports originate in the EU-27. Source: own calculations using Comtrade database.
IV.1.2 Services
No data are available on multilateral trade flows for services and the information presented is limited to exports and imports by region, shown in graphical format.63
The EU accounts for about half of world exports of services when intraregional trade is included. When intraregional trade is excluded, Asias share of world exports is almost as large as the EU share, cf. Figure IV.1.
63
The regions are as follows, based on data availability that differed from data availability in manufacturing trade. Other Western Europe: Iceland, Norway, Switzerland. Central and Eastern Europe: Albania, Armenia, Rep. of Azerbaijan, Belarus, Bosnia & Herzegovina, Croatia, Georgia, Kazakhstan, Macedonia, Moldova, Montenegro, Serbia, Turkey, Ukraine. North America: Canada, USA. Latin America: Argentina, Aruba, Bermuda, Bolivia, Brazil, Chile, Costa Rica, El Salvador, Guatemala, Honduras, Panama, Paraguay, Peru, Uruguay. Middle East: Israel, Kuwait, Saudi Arabia. Asia: Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Japan, Republic of Korea, Kyrgyz Republic, Macao, Malaysia, Pakistan, Philippines, Russian Federation, Singapore, Sri Lanka, Thailand. Oceania: Australia, New Zealand. Africa: Botswana, Cameroon, Cape Verde, Cte dIvoire, Ethiopia, The Gambia, Guinea, Kenya, Mali, Mauritius, Morocco, Mozambique, Namibia, Seychelles, South Africa, Sudan, Tanzania, Togo, Tunisia, Uganda, Zambia.
98
Figure IV.1: EU accounts for almost half of world exports of services (%)
Excluding intra-regional trade EU-27 Other Western Europe Central and Eastern Europe North America Latin America Middle East Asia excluding China and India China India Oceania Africa Including intra-regional trade
10
20
30
40
50
60
Note: The regions corrected for intraregional trade are EU-27and North America. Source: IMF balance of payments statistics (BOPS), UN services trade statistics, Eurostat.
The EU also accounts for the largest share of total world imports of services when intraEU-27is included. Asia and
the EU-27 are on par when intraregional trade for the EU-27and North America is excluded, cf. Figure IV.2.
Figure IV.2: EU accounts for most of world imports of services (%)

Excluding intra-regional trade Including intra-regional trade
EU-27 Other Western Europe Central and Eastern Europe North America Latin America Middle East Asia excluding China and India China India Oceania Africa
10
20
30
40
50
Note: The regions corrected for intraregional trade are EU-27and North America. Source: IMF balance of payments statistics (BOPS), UN services trade statistics, Eurostat.
99
IV.2 EU manufacturing and services competitiveness by sector

While the previous section looked at overall trade flows, this section looks at EU sectoral performance. It analyses first the destination and origin of manufacturing exports and imports. Then it discusses the EUs trade competitiveness with the aid of three indicators: the share of the EU in the world market, the relative trade balance (RTB), and an index of revealed comparative advantage (RCA).64 These indicators are used to describe EU competitiveness in external trade in goods.65 Only the revealed comparative advantage (RCA) is presented for services. The indices are calculated from trade flows, and are assumed to reveal the strongest sectors in each of the countries and regions for which they are calculated, measuring their comparative advantage. The indices are applied to various sectoral classifications to clarify the nature of the comparative advantage in each case. In this section the indicators are presented for abreakdown of manufacturing into23groups of products.66 By way of comparison, section IV.4analyses trade in manufacturing for products grouped into technology categories.
in EU manufacturing trade are concentrated in high income and upper medium income partners.67 In all manufacturing sectors except textiles, paper, machinery, electrical equipment and basic metals, about half or more of EU-27 exports were destined for high income countries in2009, cf. Table IV.4. The picture differs for imports. The EU imports more than half of its textiles, clothing, footwear, non metallic mineral products and furniture from low medium income countries. Low income countries exports to the EU reach a level above 10 % only in textiles, clothing and leather and footwear. US exports to the EU are significant in other transport equipments and pharmaceuticals, representing53% and47% respectively of EU imports. Japan is alarge source of EU imports for motor vehicles (32%) and machinery (18%). Finally, the BRIC group is presented both as an aggregate and in terms of its separate members, Brazil, Russia India and China. Overall, Russia, Brazil and India count much less than China as far as EU trade is concerned. More than40% of EU imports in furniture (54%), leather and footwear (52%), clothing (45%), electrical equipment (44%), nonmetallic mineral products (43%), metal products (41%) come from China. Brazil captures14% and12% of EU imports of paper and food, cf. Table IV.5.
IV.2.1 EU trade in manufactures by destination

The EU mainly trades with partners of similar level of development, but there are noticeable variations across sectors. It is worth underlining that the analyses below only refer to manufactured goods, so agriculture and mining (including energy) products are not included. This has asignificant effect on the shares of some trade partners, as in the case of Russia and the oilproducing countries. In2009, Russia represented more than athird of EU imports in refined petroleum. The shares of the main trade partners
67
See Balassa (1965) for adiscussion of the RCAindex. They were calculated for different time periods (to test for the sensitivity to the financial crisis) and the crisis appeared to have no significant impact on the data. 66 The sectors considered are manufacturing industries at the twodigit level in the Classification of Products by Activity (CPA).
64 65
The classification by income level is the one from the World Bank. The country groups are as follow: High nonEU: Australia, Bahamas, Bahrain, Brunei Darussalam, Canada, Croatia, China Hong Kong SAR, Iceland, Israel, Japan, Rep. of Korea, Kuwait, China Macao SAR, Oman, Neth. Antilles, New Zealand, Norway, Qatar, Saudi Arabia, Singapore, Switzerland, United Arab Emirates, USA. Uppermedium: Algeria, Argentina, Bosnia Herzegovina, Botswana, Brazil, Belarus, Chile, Colombia, Costa Rica, Cuba, Dominican Rep., Equatorial Guinea, Gabon, Jamaica, Kazakhstan, Lebanon, Libya, Malaysia, Mauritius, Mexico, Montenegro, Namibia, Panama, Russian Federation, Serbia, South Africa, Suriname, Trinidad and Tobago, Turkey, TFYR of Macedonia, Uruguay, Venezuela. Lowmedium: Albania, Angola, Azerbaijan, Armenia, Bolivia, Belize, Cameroon, Cape Verde, Sri Lanka, China, Ecuador, El Salvador, Djibouti, Georgia, Guatemala, Honduras, Indonesia, Iran, Iraq, Cte dIvoire, Jordan, Lesotho, Maldives, Mongolia, Rep. of Moldova, Morocco, Nicaragua, Nigeria, Paraguay, Peru, Philippines, TimorLeste, India, Swaziland, Syria, Thailand, Tunisia, Ukraine, Egypt. Low: Afghanistan, Bangladesh, Bhutan, Myanmar, Burundi, Cambodia, Central African Rep., Chad, Comoros, Congo, Dem. Rep. of the Congo, Benin, Ethiopia, Eritrea, Gambia, Ghana, Guinea, Haiti, Kenya, Dem. Peoples Rep. of Korea, Kyrgyzstan, Lao Peoples Dem. Rep., Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nepal, Niger, Pakistan, GuineaBissau, Rwanda, Senegal, Sierra Leone, Viet Nam, Somalia, Zimbabwe, Sudan, Tajikistan, Togo, Uganda, United Rep. of Tanzania, Burkina Faso, Uzbekistan, Yemen, Zambia.
100
Table IV.4:
Upper medium income Low income USA
11.0 35.4 1.2 10.1 8.9 13.4 8.7 9.2 12.1 27.5 23.9 36.3 13.9 16.8 12.6 13.2 18.8 13.2 14.3 21.0 27.9 15.2 24.5 3.6 1.8 2.1 4.4 1.4 2.4 5.7 2.2 1.4 2.5 2.3 18.1 14.9 19.1 18.2 18.5 23.5 26.0 20.2 17.4 16.1 10.8 5.7 11.4 4.7 18.8 0.5 3.5 0.8 3.2 2.4 2.2 1.5 2.2 2.1 1.5 2.2 2.8 2.6 2.0 0.5 1.2 6.6 16.3 3.2 2.3 21.4 2.0 8.9 8.8 0.2 10.0 14.1 0.2 4.4 2.3 5.7 3.4 0.5 7.1 3.0 6.2 4.1 9.5 6.2 7.6 11.4 12.8 10.5 8.5 3.0 3.4 6.2 17.8 0.3 1.9 2.8 12.4 1.1 5.5 22.4 3.1 0.2 0.9 0.0 1.1 0.2 1.0 0.6 2.7 1.0 0.6 2.4 0.6 1.6 1.7 4.5 2.5 3.0 2.6 3.6 0.8 3.0 0.7 2.2 6.4 9.0 1.6 3.0 0.3 5.7 17.1 1.3 3.9 0.3
EU exports of manufactured goods in2009by destination (%)

Low medium income Japan BRIC Brazil China India
18.3 9.4 19.7 33.7 12.4 14.0 20.0 23.8 13.2 19.9 19.2 9.6 19.7 18.6 26.3 21.0 19.8 26.2 28.4 20.0 16.9 12.9 13.0 1.5 1.5 2.0 1.9 2.9 3.1 2.7 2.8 2.0 2.3 1.8 2.3 2.0 5.7 1.2 2.4 1.6 1.2 2.4 3.6 3.8 2.7 5.1 11.7 4.1 1.9 4.7 15.4 8.5 5.7 11.1 8.7 1.7 6.0 5.4 8.2 7.6 3.0 7.3 6.4 7.2 6.8 6.3 3.9 11.9 3.9
NACE CODE
50.2 71.7 55.5 39.6 56.8 65.7 56.7 41.6 55.9 52.7 53.8 69.2 50.8 55.1 47.2 49.6 54.4 46.1 43.7 50.2 62.4 64.5 70.3 15.7 22.1 18.9 28.4 25.7 25.6 23.9 27.7 25.3 25.2 29.6 19.4 25.7 22.9 30.4 33.4 22.5 20.3 30.1 27.1 24.0 16.8 28.6
High income non EU-27
Russia
C10
Food
C11
Beverages
C12
Tobacco
C13
Textiles
C14
Clothing
C15
Leather & footwear
C16
Wood & wood products
C17
Paper
C18
Printing
C19
Refined petroleum
C20
Chemicals
C21
Pharmaceuticals
C22
Rubber & plastics
C23
Non-metalic mineral products
C24
Basic metals
C25
Metal products
C26
Computers, electronic & optical
C27
Electrical equipment
C28
Machinery n.e.c.
C29
Motor vehicles
C30
Other transport eq.
C31
Furniture
C32
Other manufacturing
Note: IntraEU regional trade is excluded. The shares do not add up to100since the US, Japan and the BRIC countries are included in the aggregates by income. Source: own calculations using Comtrade database.
101
Table IV.5:
Upper medium income Low income USA
4.9 20.1 7.9 3.7 0.6 1.0 7.3 20.0 6.4 11.9 26.8 47.3 15.2 11.7 7.1 11.4 12.4 11.1 24.5 11.4 52.9 2.3 23.7 11.0 7.8 18.4 32.2 2.8 0.4 5.2 5.3 3.3 4.6 7.8 33.8 49.5 24.8 46.1 41.9 46.6 24.6 12.4 10.9 59.0 41.7 3.3 7.2 8.4 19.7 1.0 43.1 0.6 2.3 0.6 0.9 1.5 2.3 0.6 0.1 0.6 1.3 1.9 2.0 2.4 0.2 13.6 23.3 0.9 1.4 31.0 13.7 0.1 46.3 7.4 0.1 62.9 3.2 52.2 27.0 12.1 21.1 0.7 8.8 4.6 29.7 42.9 6.4 41.1 41.1 44.1 21.3 5.3 8.0 53.6 37.3 0.1 52.6 0.0 45.1 1.5 47.3 0.3 35.2 0.2 19.4 10.0 4.6 1.7 11.6 7.5 7.1 0.6 0.6 0.4 4.4 3.1 1.9 2.4 4.1 2.2 3.7 0.6 1.6 1.6 4.9 0.3 2.1 3.8 0.4 3.0 0.3 0.7 0.2 0.2 22.7 12.2 6.7 2.5
EU imports of manufactured goods by origin (2009in %)

Low medium income Japan BRIC Brazil China India
33.0 3.8 17.4 54.7 67.2 72.0 44.4 17.5 23.4 9.5 17.0 6.9 39.1 52.6 16.2 48.1 47.7 51.8 25.9 16.3 9.5 66.1 47.0 1.2 7.2 1.6 0.1 0.3 0.2 0.4 1.1 3.1 1.7 1.3 0.0 0.4 0.1 0.0 0.2 3.6 14.7 14.8 11.8 6.5 0.2 5.3 1.4 1.7 3.1 0.3 0.0 0.3 11.4 4.5 0.9 37.4 5.5 0.0 0.9 1.1 13.9 0.7 0.1 0.3 0.4 0.3 0.6 0.9 0.4
102 Russia
21.5 51.6 19.5 14.4 3.5 5.3 20.3 52.6 71.3 35.7 66.5 91.3 44.9 29.0 41.9 40.0 44.1 37.8 64.9 56.6 83.4 11.6 46.5 5.5 16.0 5.7 27.6 9.5 10.9 7.9 11.5 40.9 18.7 15.3 2.0 16.5 55.0 5.5 30.1 32.3 8.7 16.1 20.2 58.2 45.4 41.3
NACE CODE
C10
Food
C11
Beverages
C12
Tobacco
C13
Textiles
C14
Clothing
C15
Leather & footwear
C16
C17
Paper
C18
Printing
C19
Refined petroleum
C20
Chemicals
C21
Pharmaceuticals
C22
Rubber & plastics
C23
Non-metalic mineral products
C24
Basic metals
C25
Metal products
C26
C27
C28
Machinery n.e.c.
C29
Motor vehicles
C30
Other transport eq.
C31
Furniture
C32
Other manufacturing
Note: IntraEU regional trade is excluded. The shares do not add up to100since the US, Japan and the BRIC countries are included in the aggregates by income. Source: own calculations using Comtrade database
IV.2.2 Export Market Shares

Export market shares provide insight into the position relative to international competitors. Gains or loss of market share indicates whether an EU industry is gaining competitiveness, or not, on the world market, cf. Box IV.1.
Box IV.1: Share in world markets

The share of sector iin world markets is defined as: Share of sector i = EU exports to world market in sector i/ Total world exports in sector i where, world is defined as EU-27+ US, Japan, and aselected group of countries. For the EU the share is calculated including and excluding intraEU trade.
Largest EU export shares in2009, when intraregional trade is included) were recorded for printing and reproduction of recorded media, beverages, tobacco products, pharmaceuticals, paper and paper products and furniture. When intraregional trade in the EU is excluded, US industries hold larger shares than the EU of world exports of computer, electronic and optical products and other manufacturing. Japanese industries held large shares of world exports of motor vehicles, trailers and semitrailers and machinery and equipment; however, EU industries (excluding intraregional trade) had even larger shares of world exports. China, besides having the largest shares of clothing, leather and footwear and textiles, holds relatively
large market shares in computer, electronic and optical products, furniture, and electrical equipment and fabricated metal products, cf. Table IV.6.68
68
The market share approach favours large countries; therefore, it is more relevant to compare the EU as awhole with the US, Japan, China, India, Brazil and Russia. The initial size of an economy may matter in its ability to seek foreign markets. Larger countries may benefit from more resources as far as capital, labour or other factors of production are concerned. Large countries may also benefit from economies of scale as they have larger domestic markets.
103
Table IV.6:
EU-27
46.8 69.0 68.3 29.5 32.5 38.6 50.1 57.2 76.0 32.8 49.5 65.5 50.2 50.2 35.0 49.3 24.3 41.7 50.3 55.5 49.0 50.9 32.0 16.3 2.6 21.5 0.8 34.8 8.6 4.5 4.2 14.3 24.8 12.1 8.7 32.9 9.4 12.3 21.3 6.4 8.0 9.7 6.7 9.3 24.5 19.6 10.9 4.5 13.4 27.0 23.9 23.3 3.8 8.2 18.9 14.2 7.1 6.4 14.6 24.0 5.3 6.3 20.7 19.2 6.1 9.3 13.6 0.8 1.2 2.1 0.9 0.2 0.6 0.7 1.0 1.5 0.8 0.2 41.9 1.0 10.1 4.3 0.3 24.8 5.7 13.1 9.9 1.1 14.8 2.4 9.4 20.6 0.7 49.4 1.1 6.1 4.0 0.3 1.9 3.3 5.6 2.6 11.5 17.4 5.8 16.2 23.8 18.0 9.1 2.8 9.6 25.5 14.1 25.1 1.5 10.7 9.3 3.0 4.7 21.4 0.1 5.2 19.4 2.2 12.1 16.2 0.2 1.9 37.0 2.1 32.5 10.3 0.1 1.4 39.3 0.1 35.2 0.0 0.1 4.8 1.4 0.1 11.4 1.7 0.1 0.4 0.8 4.9 0.5 0.1 0.3 0.3 0.2 0.7 0.3 0.1 11.4 2.7 4.8 37.2 0.5 32.0 0.1 30.3 0.4 2.6 5.5 0.7 1.9 2.1 48.4 0.3 6.0 1.9 0.1 1.2 0.5 14.8 0.5 8.2 12.7 5.5 4.7 0.8 1.7 0.2 0.8 4.6 4.0 2.2 0.2 0.3 1.7 5.2 1.5 1.4 0.9 1.3 1.8 1.3 0.4 0.7 0.7 0.6 1.6 0.5 9.5
Share of EU and main trade partners in world markets by sectors in2009

EU-without intra-regional trade Japan USA BRIC Brazil China Russia India
104
Commodity Description
C10
Food
C11
Beverages
C12
Tobacco
C13
Textiles
C14
Clothing
C15
Leather & footwear
C16
C17
Paper
C18
Printing
C19
Refined petroleum
C20
Chemicals
C21
Pharmaceuticals
C22
Rubber & plastics
C23
Non-metallic mineral products
C24
Basic metals
C25
Metal products
C26
C27
C28
Machinery n.e.c.
C29
Motor vehicles
C30
Other transport eq.
C31
Furniture
C32
Other manufacturing
Source: own calculations using COMTRADE data.
IV.2.3 Sectoral trade balance

The relative trade balance (RTB), measures the trade balance relative to total trade in the sector. This indicator
is calculated for the EU relative to the rest of the world. It is used to rank EU sectors according to their competitiveness visvis the rest of the world and to measure gains and losses in competitiveness over time, cf. Box IV.2.
Box IV.2: Relative trade balance (RTB) indicator

The RTB indicator for product i is defined as follows:
where X=value of exports and M=value of imports. This indicator is based on EU-25trade with the rest of the world. The source of the data is the UN database COMTRADE.
A negative trade balance is not necessarily a bad sign. Imports can contribute to the countrys economy and may stimulate production in other sectors. Also, trade balances are dependant on domestic and foreign demand. This means that this indicator does not exclusively reflect external competitive strength; it also indicates adifference between domestic and international demand.
EU industries recorded their highest RTB values in2009for beverages, machinery and equipment, other transport equipment and fabricated metal products. EU RTBs increased between 2009and2008 in basic metals, machinery and equipment, paper and chemical products. EU RTBs were notably negative for wearing apparel and computer, electronic and optical products, cf. Table IV.7.
Table IV.7:
NACE code
C10 C11 C12 C13 C14 C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27 C28 C29 C30 C31 C32
EU RTB indicators in manufacturing sectors from2007to2009

2007
-0.03 0.21 0.03 -0.01 -0.19 -0.07 0.00 0.04 0.08 -0.03 0.03 0.07 0.04 0.08 -0.06 0.09 -0.11 0.07 0.16 0.06 0.13 0.04 -0.04
2008 2009
-0.03 0.20 0.06 -0.01 -0.19 -0.07 0.02 0.04 0.05 -0.01 0.03 0.08 0.04 0.08 -0.03 0.09 -0.11 0.08 0.17 0.08 0.11 0.04 -0.04 -0.03 0.20 0.06 -0.02 -0.21 -0.08 0.04 0.06 0.04 -0.05 0.05 0.08 0.04 0.09 0.01 0.10 -0.11 0.08 0.20 0.08 0.11 0.03 -0.04
Manufacture of food products Manufacture of beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of coke and refined petroleum products Manufacture of chemicals and chemical products Manufacture of basic pharmaceutical products and pharmaceutical preparations Manufacture of rubber and plastic products Manufacture of other non-metallic mineral products Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machineryand equipment n.e.c. Manufacture of motor vehicles, trailers and semi-trailers Manufacture of other transport equipment Manufacture of furniture Other manufacturing
Note: Due to the transition from NACE Rev.1to NACE Rev.2, the data are not completely comparable with the previous edition. Data according to NACE Rev.2are only available from2007. Source: own calculations using Comtrade data.
105
IV.2.4 Revealed comparative advantage

The third indicator of competitiveness is the index of revealed comparative advantage (RCA), which compares the share of a given sectors exports in the EUs total manufacturing exports with the share of the same sectors
exports in the total manufacturing exports of agroup of reference countries. Values higher (lower) than1mean that agiven industry performs better (worse) than the reference group, and are interpreted as a sign of comparative advantage. The RCA indicator is thus used to rank EU products by comparative advantage, cf. Box IV.3.
Box IV.3: Revealed comparative advantage (RCA) indicator

The RCA indicator for product i is defined as follows:
where: X=value of exports; the reference group (W) is the EU-27plus142other countries (as listed in Section IV.1.1Goods); the source used is the UN COMTRADE database. In the calculation of RCA, XEU stands for exports to the rest of the world (excluding intraEU trade) and XW measures exports to the rest of the world by the countries in the reference group.
IV.2.4.1 RCA in manufactures

In2009, the EU-27recorded RCAs above1.6for industries producing printing, beverages, and tobacco products. At the bottom of the graph, computer, electronic and optical products, textiles, other manufacturing, clothing and refined petroleum have an index lower than 0.8. When interpreting the results some considerations should be taken into account: first, the level of sectoral aggregation may mask differing performance in various
categories of goods within the same group of products. This is particularly relevant for industries which have alarge variety of brands and quality levels for the same type of goods. Another consideration concerns country heterogeneity within the EU, as the performance of the EU as awhole is explained in some cases by the performance of afew EU countries. Finally, the weight of each sector and country in the export structure of the EU should be borne in mind to get to abalanced assessment of the EUs sectoral performance in external trade, cf. Figure IV.3.
106
Figure IV.3: EU-27RCA index in2009

Printing Beverages Tobacco Pharmaceuticals Paper Motor vehicles Furniture Machinery n.e.c. Rubber & plastics Non-metallic mineral products Wood & wood products Chemicals Metal products Other transport eq. Food Electrical equipment Leather & footwear Basic metals Re ned petroleum Clothing Other manufacturing Textiles Computers, electronic & optical 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0
Cyprus, Greece, Lithuania, Luxembourg, the Netherlands, Portugal and Romania, all appeared to be highly specialised in tobacco products in2009. Wood and wood products is another category of goods where many EU countries recurrently exhibit high revealed comparative advantages. The high RCAs in wood and wood products of Austria, Estonia, Finland, Latvia and Portugal are in line with the specialisation patterns that could be observed in Section II.1(Table II.2). Interestingly, only Finland and Sweden are the only countries which are highly specialised in paper and paper products. Cyprus and Ireland, followed by Belgium appear to be significant players in basic pharmaceutical products. In Ireland, this is also coupled with high RCAs in chemical products. Bulgaria and Romania are the only EU remnants that still had high revealed comparative advantages in trade of wearing apparel while Portugal, Italy and Romania have important revealed comparative advantages in leather and related products. In reference to Section II.1.2, and as illustrated in FigureII.6, smaller countries tend to have stronger specialisation
patterns. This also applies to sectoral trade characteristics. Aproblem with the RCA measure is that countries with arelatively small manufacturing industry can turn out to have high RCAs even though the industry with the high RCA only consists of afew firms but accounts for alarge share of total manufacturing exports in the country. Natural examples in the EU are Cyprus, Luxemburg and Malta where some industries display very high RCAs. Compared to the EU, the US seemed to have high revealed comparative advantages in the following groups of products in 2009: other manufacturing, computer, electronic and optical products, chemicals, refined petroleum products and machinery, and equipment. Japan had high RCAs in capital equipment, particularly motor vehicles and machinery. In China, the trade specialisation profile is strongly oriented towards textiles, clothing, leather and furniture; although China also has ahigh RCA in sectors such as office machinery and computers, cf. Table IV.8.
107
Table IV.8:
C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27 C28 C29 C30 C31 C32
RCA in manufacturing in2009: EU countries, US, Japan and Brazil, China and Russia
Comput Electri Other Other Metal Ma Furni ers, elec cal Motor prod chinery trans manu tronic & equip vehicles ture ucts n.e.c. port eq. facturing optical ment
108
0.75 1.02 1.31 0.42 0.39 0.79 0.65 0.26 1.05 0.38 0.71 0.52 0.06 3.01 0.37 0.33 0.44 0.16 0.66 0.36 3.30 2.81 1.22 0.64 1.35 0.21 0.46 0.91 0.21 0.03 1.96 2.56 1.36 0.11 1.18 0.58 0.02 2.05 0.96 0.12 3.82 1.34 1.19 0.26 2.77 0.37 0.21 1.08 1.79 0.67 0.20 0.24 0.15 1.05 0.09 0.77 1.04 0.41 0.69 0.26 3.18 9.03 0.19 0.76 1.10 1.30 1.36 1.16 1.46 1.00 0.97 0.44 0.93 1.33 2.33 1.54 1.13 0.18 0.32 0.20 0.84 0.06 0.92 1.18 1.03 1.08 0.74 0.91 0.54 0.31 0.73 1.18 0.70 0.94 1.10 1.37 0.79 0.64 0.74 0.82 0.71 1.25 1.91 0.46 1.10 3.89 0.79 1.16 0.91 0.67 0.83 1.27 0.82 0.37 0.70 0.57 1.03 1.18 0.14 1.87 0.25 0.12 0.71 0.98 0.89 1.12 0.56 1.42 0.42 0.24 1.08 1.18 1.37 1.65 0.67 0.72 0.43 0.24 1.15 1.30 0.96 2.12 0.95 0.22 0.34 0.15 4.45 0.83 1.56 0.24 1.53 1.31 8.16 4.79 0.66 0.87 0.56 0.82 0.35 0.53 18.34 3.36 2.13 0.05 0.31 2.40 4.51 3.98 1.79 3.19 0.88 3.98 2.23 0.96 0.42 0.40 1.04 0.69 0.78 8.57 1.05 1.24 0.73 0.87 0.10 1.01 0.78 0.85 2.37 0.02 0.92 1.55 2.61 0.29 1.33 1.85 1.29 5.68 1.30 7.21 0.29 0.23 1.32 0.99 0.01 0.75 1.15 2.43 1.47 0.15 0.00 1.25 0.65 1.00 0.21 1.74 0.73 0.48 0.99 0.04 0.63 0.19 0.46 0.14 0.26 1.06 2.61 0.00 0.17 0.73 3.48 1.49 0.58 0.29 2.10 0.36 0.15 0.72 0.70 4.93 0.02 0.09 2.02 0.43 0.63 1.29 0.89 0.34 0.53 1.30 0.50 2.10 0.56 0.53 0.50 0.62 0.68 0.58 1.33 1.05 0.90 0.52 3.38 0.68 0.60 1.35 0.52 0.33 1.63 0.65 0.62 0.44 0.39 0.81 1.06 0.73 1.33 3.40 0.69 4.53 0.28 1.28 0.10 0.44 1.69 1.33 1.65 0.85 6.26 0.91 1.12 0.37 0.16 2.10 0.83 0.27 0.34 0.30 0.15 2.04 1.21 1.53 1.36 1.06 0.82 0.37 1.70 1.18 1.31 0.86 1.12 1.29 1.25 1.22 0.28 1.36 0.87 1.18 3.72 1.46 0.82 1.68 1.83 1.38 1.28 1.64 1.21 0.91 1.40 1.13 2.18 0.39 1.83 1.50 1.60 0.78 0.98 1.03 2.57 1.17 0.22 2.02 1.59 0.77 2.56 0.42 0.48 1.54 3.55 0.53 1.15 1.54 2.21 0.64 1.24 1.04 2.83 0.37 0.67 0.35 0.42 1.19 0.76 0.77 1.96 0.31 0.05 0.98 1.43 0.23 4.05 0.04 0.58 0.86 0.60 0.88 1.14 0.90 1.02 1.04 1.98 0.72 0.66 0.63 2.01 1.57 1.90 0.97 0.92 1.24 1.01 0.76 0.20 1.73 1.43 1.00 1.10 0.40 0.75 1.70 2.02 0.96 1.57 1.88 1.16 1.01 0.41 0.22 0.30 0.92 0.98 0.49 0.39 0.78 0.43 0.54 0.25 1.75 0.88 0.20 0.43 0.23 0.33 2.55 1.14 0.66 0.31 0.50 1.40 0.23 0.21 0.76 1.34 0.43 1.11 0.30 1.51 1.18 1.42 1.51 0.92 1.17 0.78 1.72 0.22 1.13 0.59 0.51 0.67 1.69 0.54 1.29 0.98 1.40 0.98 2.05 0.89 1.12 1.47 0.68 0.72 0.55 1.15 1.53 0.65 1.57 0.88 1.62 0.40 0.79 0.29 1.90 0.60 0.52 0.84 0.39 1.00 0.56 0.52 0.76 0.61 0.99 0.70 1.27 1.27 1.16 0.29 0.33 2.17 0.33 1.13 0.36 1.22 1.77 0.11 1.87 0.04 0.74 0.75 0.68 0.73 0.04 0.36 2.03 1.45 1.99 2.35 1.84 2.43 0.97 0.71 0.24 0.34 1.52 0.51 0.61 0.29 1.30 3.23 1.35 1.18 0.16 0.39 0.95 0.50 0.50 1.18 0.81 0.41 1.09 0.14 1.54 0.27 0.33 1.04 0.40 1.49 1.15 0.50 1.51 1.38 0.76 1.00 0.52 1.42 0.60 1.39 0.80 1.49 2.75 3.00 0.29 0.66 0.85 0.36 0.98 0.09 2.55 2.76 6.01 0.11 0.35 0.40 4.97 2.62 3.90 1.72 3.09 0.85 1.62 0.38 1.20 0.46 0.14 0.69 2.01 0.28 0.22 0.78 1.12 0.33 2.69 0.78 0.86 0.54 0.49 0.76 0.64 0.39 0.26 1.44 0.95 0.55 0.38 0.25 1.97 0.83 0.30 0.30 0.30 0.29 0.49 0.38 0.54 1.09 0.75 1.59 0.46 0.19 1.11 5.88 0.05
C10
C11
C12
C13
C14
NonWood Refined Rubber Leather & Chemi Pharma metallic Basic & wood Paper Printing petro & plas Food Beverages Tobacco Textiles Clothing footwear cals ceuticals mineral metals products leum tics products
0.92 1.35 1.45 2.06 0.47 3.08 1.23 0.33 1.18 0.78 2.70 0.84 1.25 0.93 1.61 2.02 0.92 0.63 2.11 1.40 1.17 0.33 0.46 0.59 1.60 0.53
2.06 1.08 0.94 1.43 0.74 0.77 2.08 0.51 3.94 0.66 1.81 0.40 1.62 2.13 4.16 1.17 0.88 0.21 1.44 0.47 3.76 0.23 0.51 0.60 2.22 0.91
0.85 0.98 3.10 34.64 1.54 1.86 0.45 0.02 0.59 1.80 5.69 0.02 0.40 0.02 3.35 5.65 6.33 1.32 5.36 4.77 5.30 5.93 0.00 0.00 0.33 0.24
0.71 0.87 1.37 0.11 0.93 0.73 1.49 0.23 0.60 0.54 1.75 0.33 0.08 1.37 1.15 1.14 2.05 1.19 0.49 0.62 1.98 1.13 0.40 0.69 0.84 0.33
0.55 0.78 3.73 0.55 0.38 1.53 1.13 0.16 0.73 0.51 2.14 0.31 0.07 1.60 1.25 1.43 0.38 0.36 0.57 0.73 2.26 2.55 0.49 0.45 1.23 0.32
1.10 1.62 1.60 0.69 0.91 0.66 0.29 0.53 0.09 0.06 0.08 0.48 5.09 0.12 0.61 0.45 0.37 0.09 0.15 2.52 1.03 0.09 0.50 2.86 0.66 0.37 1.69 0.08 Source: own calculations using COMTRADE data.
Austria Belgium Bulgaria Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom EU-27 USA Japan Brazil China India Russia
0.70
3.32
0.93
0.53
0.60
0.76 0.16 0.02 0.05 2.77 2.48 0.02
RCAindices for individual manufacturing industries are presented in graphs to aid comparison of EU-27 with
the US, Japan, China, Russia and Brazil, cf. Figures IV.4 to IV.10.
Figure IV.4: EU-27trade in manufactured products RCA index in2009

Food Other manufacturing Furniture Other transport eq.
1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2
Beverages Tobacco Textiles
Motor vehicles
Clothing
Machinery n.e.c.
Leather & footwear
Paper
Metal products Basic metals Non-metallic mineral products Rubber & plastics Pharmaceuticals
Printing Rened petroleum Chemicals
Note: The radius1 circle is highlighted to aid identification of those sectors with acomparative advantage, which are located outside the circle. Source: own calculations using COMTRADE data.
Figure IV.5: US trade in manufactured products RCA index in2009

1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2
Beverages Tobacco Textiles Clothing
Motor vehicles
Machinery n.e.c.
Leather & footwear
Paper
Metal products Basic metals Non-metallic mineral products Rubber & plastics
Printing Rened petroleum Chemicals Pharmaceuticals
109
EU industrial structure 2011 Trends and Performance Figure IV.6: Japan trade in manufactured products RCA index in2009
2.5 2.0 1.5 1.0 0.5
Motor vehicles
Clothing
Machinery n.e.c.
Leather & footwear
Paper
Metal products Basic metals Non-metallic mineral products Rubber & plastics Chemicals Pharmaceuticals
Printing Re ned petroleum
Figure IV.7: Brazil trade in manufactured products RCA index in2009

5 4 3 2 1
Motor vehicles
Clothing
Machinery n.e.c.
Leather & footwear
Paper
Printing Re ned petroleum Chemicals Pharmaceuticals
110
Figure IV.8: China trade in manufactured products RCA index in2009

Other manufacturing Furniture Food
3.0 2.5 2.0 1.5 1.0
Other transport eq.
Motor vehicles
Clothing
Machinery n.e.c.
0.5
Leather & footwear
Paper
Printing
Re ned petroleum Chemicals Pharmaceuticals
Figure IV.9: India trade in manufactured products RCA index in2009

6 5 4 3 2
Motor vehicles
Clothing
Machinery n.e.c.
Leather & footwear
Paper
111
EU industrial structure 2011 Trends and Performance Figure IV.10: Russia trade in manufactured products RCA index in2009
Motor vehicles
Machinery n.e.c.
10 9 8 7 6 5 4 3 2 1
Clothing
Leather & footwear
Paper
IV.2.4.2 RCA in Services

Service industries account for about three quarters of the EU value added in2009but significantly less of their output is traded compared to manufacturing which represents15% of EU value added. World services exports represented about2300billion euro in2009(WTO,2011). In absolute terms, this amounts to slightly more than a quarter of the 8 200 billion euro in merchandise and agricultural trade in 2009 (WTO, 2011). The analyses of trade in services in this section are based on a sample
of102countries (see section IV.1.2Services), accounting for99% of services trade in the world. This sample was used to estimate total world trade for all services and total word trade by type of service. Trade in services differs substantially from manufacturing trade, for example in transactions of products between different countries. A definition of trade in services and presentation of the different services industries participating in international trade is provided below, cf.Box IV.4.69
69
It should also be noted that the service Royalties and licence fees is not included in this report as it is not related to aspecial service activity.
112
Box IV.4: Trade in services: definition, sectoral breakdown and measurement70

International trade in services involves transactions between residents and nonresidents of an economy. Services are less tradable than goods. As they are immediately consumed, they cannot be resold. For many services, the consumer and provider of the service have to be located at the same place. From asectoral perspective, the main components of services activities are generally broken down into three categories grouping together11types of services sectors: 1. Transportation 2. Travel. 3. Other services, including: communication services, construction services, insurance services, financial services, computer and information services, royalties and licence fees, other business services, personal, cultural and recreational services and government services There are four modes for the supply of services: - Mode1is crossborder supply, where only the service crosses the border. The change of country can, for example, be via electronic communication (Internet, telephone, facsimile, etc.). The sectors characterised by crossborder supply are: most of transportation, communication services, financial and insurance services, royalties and licence fees. Parts of certain sectors can involve crossborder supply: part of computer and information services, part of other business services, and part of personal, cultural and recreational services. - Mode2is consumption abroad, when consumers cross the border. This is the case principally for tourism or business travel, when individuals go to hotels and restaurants. Part of transportation can also be counted as consumption abroad (supporting and auxiliary services for carriers in foreign ports). - Mode3is commercial presence, when suppliers (firms) cross the border to supply services. Aforeign company will, for example, open branches or subsidiaries in the destination country. Some construction services involve commercial presence. - Mode4is the presence of natural persons when suppliers (natural persons) cross the border to supply services. An individual who is selfemployed (for example aconsultant or ahealth worker) or an employee (for instance aconstruction worker) moves temporarily to the country of the consumer to supply services. This form of trade is found in the following sectors: part of the computer and information services sector, part of other business services, part of the personal, cultural and recreational services sector, and part of the construction services sector. In this report, there is agap between the conceptual classification of trade in services and the data that were used from the balance of payments statistics. Data on trade in services are more deficient than data on trade in goods. There are practical difficulties that arise when capturing trade in services. It is complicated to separate goods and services in the balance of payments. As aresult, the latter may be underrecorded. Moreover, certain transactions falling under the four modes of supply are not accounted for in the balance of payments estimates of services trade. Crossborder trade (Mode1) is the mode of supply best covered by the balance of payments statistics. Mode2 consumption abroad is generally well covered as it is represented by expenditures in tourism and business travel. Trade through commercial presence (mode3) is accounted for through company surveys (foreign affiliates trade in services surveys), which are adifferent type of statistics. The balance of payments takes into account residency rather than nationality: aservice is considered as traded if it takes place between residents and nonresidents. In the case of trade through commercial presence (mode3), there are only residents of the country who are involved. Mode4 presence of natural persons is also badly covered.
70
For more background, see European Commission, United Nations, International Monetary Fund, Organisation for Economic Cooperation and Development, United Nations Conference on Trade and Development, World Trade Organisation (2002) and WTO (2007).
113

Before the results of analyses are presented it should be noted that the RCA measure for services trade cannot be compared directly with the RCA measure for goods trade, cf. Box IV.5.
Box IV.5: Differing interpretation of RCA in manufacturing and services71

I. Unlike manufacturing goods, services are not only supplied through crossborder trade. There are other modes of supply, such as movements of consumers to producers, commercial presence abroad or movement of physical persons. II. Domestic polices rather than trade policies are more likely to have an impact on trade in services. III. Services supplied via factor movements are traded between residents and nonresidents in the same country and not between countries.
As was discussed in section III.2, specialisation in services industries differs markedly between the Member States. Cyprus, Luxembourg and the UK have very strong revealed comparative advantages in financial services. Ireland, Luxembourg and the UK have high RCAs in insurance services. Ireland also has a high RCA in computer and information services together with Finland. As with
manufacturing, the RCA measure is sensitive to the relative distribution of services industries in acountry. In relatively small economies relatively large service industries which account for alarge share of exports can give rise to high RCAs. This is the case for Cyprus and Malta with regard to financial services and personal, cultural and recreational services respectively, cf. Table IV.9.72 7172
Table IV.9:
RCA in services activities in2009: EU countries, US, Japan and Brazil, China and Russia
Computer Communi Construc and infor cation tion mation Finance
0.26 0.52 0.07 2.79 0.03 0.16
Insurance
0.94 0.68 0.82 0.35 0.26 0.35
Other business services

1.08 1.61 0.37 0.71 0.86 0.77
Personal, cultural Transpor and rec tation reational

0.45 0.67 0.70 0.40 0.46 0.73 0.80 0.97 0.73 1.34 1.51 2.17
Travel
1.52 0.54 2.31 0.77 1.07 0.47 >>>
Austria Belgium Bulgaria Cyprus Czech Republic Denmark
1.17 2.00 1.30 0.40 0.82 0.47
0.63 0.91 0.40 0.26 0.84 0.56
0.88 0.63 2.02 0.34 0.58 0.24
71
72
See Langhammer (2004) for adetailed presentation. Personal, cultural and recreational services involve transactions in (i) audiovisual and related services and (ii) other personal, cultural and recreational services. Other personal, cultural and recreational services comprise services such as those associated with museums, libraries, archives, and other cultural, sporting, and recreational activities. Also included are fees for services, including provision of correspondence courses, rendered abroad by teachers or doctors. Construction services cover work performed on construction projects and installations by employees of an enterprise in locations outside the economic territory of the enterprise. Goods imported by the enterprise for use in the projects are included in the value of these services rather than under goods. Projects carried out by foreign subsidiaries or branches of enterprises (direct investors) and certain site offices are excluded because such projects are part of the production of the host economy. See http://stats.oecd.org/OECDStat_ Metadata/ShowMetadata.ashx?Dataset=TIS&Coords=[SER]. [287]&ShowOnWeb=true&Lang=en
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Chapter IV International competitiveness of EU industry Personal, cultural Transpor and rec tation reational
0.21 0.03 1.01 0.41 0.33 4.49 0.00 0.93 0.22 0.37 1.60 18.12 0.83 0.44 1.24 0.72 0.77 0.75 1.24 0.86 1.26 0.88 3.17 0.11 0.28 0.06 0.44 0.76 1.93 0.00 1.37 1.39 2.36 1.16 0.00 0.85 1.81 1.97 0.19 0.47 1.02 1.07 0.91 1.07 1.08 0.88 0.52 0.63 0.51 0.97 0.57 1.65 0.55 1.10 0.77 1.08
Computer Communi Construc and infor cation tion mation

Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovak Republic Slovenia Spain Sweden United Kingdom EU-27 United States Japan Brazil China,P.R.: Mainland India Russian Federation 1.30 0.57 1.12 0.73 0.30 0.91 0.33 0.61 1.06 1.11 2.22 0.58 2.08 0.90 1.20 3.62 1.40 1.85 0.69 1.46 1.36 1.07 0.99 0.20 0.55 0.32 0.56 1.32 0.51 4.92 0.16 0.92 0.12 0.93 6.54 0.12 0.55 0.18 0.30 0.33 1.20 0.52 0.27 1.73 0.78 0.44 0.84 2.11 0.85 1.09 0.58 0.11 0.14 0.72 7.74 0.53 1.17 1.75 1.41 1.62 0.23 0.66 0.00 0.85 0.32 0.59 0.26 0.00 1.14 1.74 1.05 1.77 0.67 1.53 1.15 0.32 0.36 0.90 0.58 3.03 0.02 2.06 0.27 2.65
Finance
0.15 0.21 0.17 0.59 0.04 0.12 1.21 0.87 0.86 0.14 7.86 0.83 0.20 0.19 0.12 0.24 0.67 0.08 0.50 0.32 3.15 1.12 1.89 0.47 0.80 0.04 0.45 0.34
Insurance
0.08 0.31 0.20 0.80 0.33 0.04 5.15 0.50 0.30 0.00 2.26 0.60 0.28 0.04 0.28 0.22 0.50 0.63 0.65 0.81 2.21 1.07 1.60 0.27 0.61 0.44 0.64 0.46

0.62 1.93 0.80 1.12 0.14 0.95 1.30 1.06 0.61 0.30 0.51 1.11 1.48 1.01 0.79 1.14 0.56 0.72 0.95 1.60 1.26 1.07 0.91 1.23 2.11 1.18 0.53 1.08
Travel
0.77 0.52 1.26 0.55 1.10 1.15 0.24 1.49 0.80 1.25 0.29 1.14 0.61 1.32 1.83 0.54 1.60 1.78 1.86 0.80 0.57 0.90 1.32 0.32 0.87 1.10 0.47 0.97
Source: own calculations using IMF bops and OECD.
The EU has arelative comparative advantage in almost all the sectors analysed except personal, cultural and recreational, construction and travel.73 The previous edition of EU industrial structure, which based its findings on 2006 data, showed that the EU had the highest RCA in financial services of all countries.2009data shows that even though the EU still has
73
As mentioned previously, trade deficits and indications that country does not have comparative advantages in asector does not necessarily mean that it constitutes a problem. The RCA values below1.0for personal, cultural and recreational and travel services industries indicate that citizens in the EU-27on average spend more money in third countries than third country tourists spend in the EU. The conclusion is that arelatively high standard of living allows people in the EU-27to travel to third countries and spend money.
acomparative advantage in financial services, the US now has the highest RCA in these services. US RCAs are even higher compared with the EU in personal, cultural and recreational services. Both the EU and the US appear to be quite diversified in their services trade. Japan appears to be highly specialised in trade of construction services as do China and Russia. India is highly specialised in computer and information services, an area where China differs radically. While China has strong comparative advantages in manufacturing radio, television and telecommunication equipment, it does not have any advantage in the services related to those manufacturing goods. Brazil exhibits high RCA values in other business services, cf. Figures IV.11to IV.17.
115
EU industrial structure 2011 Trends and Performance Figure IV.11: EU-27trade in services RCA index in2009
Communication
1.2
Travel
1.0 0.8 0.6 0.4
Computer and information
Transportation
0.2
Construction
Personal, cultural and recreational
Finance
Insurance
Note: The radius 1 circle is highlighted to aid identification of those sectors with a comparative advantage, which are located outside the circle. Source: own calculations using IMF bops.
Figure IV.12: US trade in services RCA index in2009

Communication
3.5 3.0
Travel Computer and information
2.5 2.0 1.5 1.0
Transportation
0.5
Construction
Finance
Insurance
116
Figure IV.13: Japan trade in services RCA index in2009
Communication
3.5
Travel
3.0 2.5 2.0 1.5 1.0
Transportation
0.5
Construction
Finance
Insurance
Figure IV.14: Brazil trade in services RCA index in2009
Communication
2.5
Travel
2.0 1.5 1.0
Transportation
0.5
Construction
Finance
Insurance
117
EU industrial structure 2011 Trends and Performance Figure IV.15: China trade in services RCA index in2009
Communication
2.5
Travel
2.0 1.5 1.0
Transportation
0.5
Construction
Finance
Insurance
Figure IV.16: India trade in services RCA index in2009

Communication
8
Travel
6 4 2
Transportation
Construction
Finance
Insurance
Note: The radius 1 circle is highlighted to aid identification of those sectors with a comparative advantage, which are located outside the circle. Source: own calculations using IMF bops
118
Figure IV.17: Russia trade in services RCA index in2009

Communication
3.0
Travel
2.5 2.0 1.5 1.0
Transportation
0.5
Construction
Finance
Insurance
IV.3 Intraindustry trade

Trade was analysed for broad categories of products in the previous section. Part of international trade consists in countries exchanging products (interindustry trade) reflecting relative different factor (labour and capital) endowments and technology. Countries which are relatively endowed with capital tend to trade capital intensive goods in exchange for labour intensive goods from countries which are relatively well endowed with labour: for example, pharmaceuticals for textiles or motor cars for food. In section IV.1, the international trade network was presented in terms of trade flows between geographic regions. However, alarge proportion of trade comprises exchange of similar goods between countries which have comparable levels of income, such as different brands of cars and clothes. This type of trade, intraindustry trade (IIT) is explained by factors such as economies of scale and demand for differentiated products, rather than by relative factor endowments. As demand for differentiated products and varieties of different qualities tend to rise with income, per capita incomes of countries play an important role in determining trade patterns. About 53 % of world trade occurs between countries in the groups composed of the EU-27and other highincome countries. If uppermedium countries are included, this share
rises to almost70%. While trade between different types of countries (e.g. high and uppermedium income countries on the one hand and low and lowmedium income countries on the other) can be expected to involve goods produced with differences in factor intensities, the exchange of goods between highincome countries suggests adifferent pattern of trade. However, IIT also involves trade between highincome and lowerincome countries as well as between the lowerincome countries themselves, cf. Table IV.10.74
74
The classification by income level that was used is the one from the World Bank. The country groups are: High nonEU: Australia, Bahamas, Bahrain, Brunei Darussalam, Canada, Croatia, China, Hong Kong SAR, Iceland, Israel, Japan, Rep. of Korea, Kuwait, China, Macao SAR, Oman, Neth. Antilles, New Zealand, Norway, Qatar, Saudi Arabia, Singapore, Switzerland, United Arab Emirates, USA. Uppermedium: Algeria, Argentina, Bosnia Herzegovina, Botswana, Brazil, Belarus, Chile, Colombia, Costa Rica, Cuba, Dominican Rep., Equatorial Guinea, Gabon, Jamaica, Kazakhstan, Lebanon, Libya, Malaysia, Mauritius, Mexico, Montenegro, Namibia, Panama, Russian Federation, Serbia, South Africa, Suriname, Trinidad and Tobago, Turkey, TFYR of Macedonia, Uruguay, Venezuela. Lowmedium: Albania, Angola, Azerbaijan, Armenia, Bolivia, Belize, Cameroon, Cape Verde, Sri Lanka, China, Ecuador, El Salvador, Djibouti, Georgia, Guatemala, Honduras, Indonesia, Iran, Iraq, Cte dIvoire, Jordan, Lesotho, Maldives, Mongolia, Rep. of Moldova, Morocco, Nicaragua, Nigeria, Paraguay, Peru, Philippines, TimorLeste, India, Swaziland, Syria, Thailand, Tunisia, Ukraine, Egypt. Low: Afghanistan, Bangladesh, Bhutan, Myanmar, Burundi, Cambodia, Central African Rep., Chad, Comoros, Congo, Dem. Rep. of the Congo, Benin, Ethiopia, Eritrea, Gambia, Ghana, Guinea, Haiti, Kenya, Dem. Peoples Rep. of Korea, Kyrgyzstan, Lao Peoples Dem. Rep., Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nepal, Niger, Pakistan, GuineaBissau, Rwanda, Senegal, Sierra Leone, Viet Nam, Somalia, Zimbabwe, Sudan, Tajikistan, Togo, Uganda, United Rep. of Tanzania, Burkina Faso, Uzbekistan, Yemen, Zambia.
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EU industrial structure 2011 Trends and Performance Table IV.10: Manufactured products - World trade matrix, income level: exports in2009(%)
Destination Export
Origin EU-27 High income non EU-27 Upper medium income Low medium income Low income World
EU-27
26.9 6.3 3.4 3.3 0.1 39.8

7.3 12.8 4.3 8.2 0.4 33.1
Upper medium income

3.3 3.9 1.5 1.7 0.1 10.4
Low medium income

2.9 7.5 2.1 1.9 0.2 14.6
Low income
0.4 0.6 0.3 0.9 0.1 2.2
World
40.6 31.1 11.5 16.0 1.0 100.0
Note: Due to rounding, certain columns or rows do not add up to100%. The matrix is calculated from export data. It refers exclusively to manufactured products, so it does not include crude oil and other products from mining and quarrying. The values in each cell are percentage shares of total world trade. The main diagonal in the matrix (shaded cells) represents intraregion trade (e.g. exports from EU countries to EU countries). Each cell shows the share of total world exports which are exported from an exporter to acertain destination. For example, Upper medium income countries exports to EU-27accounts for3.4% of total world exports and total Upper median income countries exports accounts for11.5% of total world exports. Source: own calculations using COMTRADE data.
When intraregional EU trade is excluded from the data, the largest share of EU-27trade (both exports and imports) takes place with high income countries. Some 53 % of extraEU exports go to other highincome countries,
and56% of imports originate from highincome countries towards the EU. However,21% of extraEU exports go to lowmedium income countries, and18% of EU imports also originate from these countries, cf. Tables IV.11and IV.12.
Table IV.11: Manufactured products - World trade matrix income level: destination of exports in2009(%)
Destination High income non EU-27
52.8 0.0 43.0 58.5 47.3
Export
Origin EU-27 High income non EU-27 Upper medium income Low medium income Low income
EU-27
0.0 34.5 33.7 23.2 15.8
Upper medium income

23.9 21.1 0.0 12.3 8.9
Low medium income

20.8 41.0 20.6 0.0 28.0
Low income
2.6 3.4 3.1 6.1 0.0
World
100.0 100.0 100.0 100.0 100.0
Note: Due to rounding, certain columns or rows do not add up to100%. The matrix is calculated from export data. It refers exclusively to manufactured products, so it does not include crude oil and other products from mining and quarrying. The main diagonal in the matrix (shaded cells) shows that intraregional trade (e.g. exports from EU countries to EU countries) is excluded in this table. Exporters are shown in rows and destination markets in columns. Each cell shows the share of total exports from an exporter to acertain destination. For example,33.7% of Upper medium income countries exports are destined for EU-27. Source: own calculations using COMTRADE data.
120
Table IV.12: Manufactured products - World trade matrix income level: import destination in2009(%)
Destination Import
Origin EU-27 High income non EU-27 Upper medium income Low medium income Low income World
EU-27
0.0 55.7 24.2 18.3 1.8 100.0
High income Upper medium Low medium non EU-27 income income
38.0 0.0 21.1 37.5 3.5 100.0 36.1 43.7 0.0 18.9 1.9 100.0 27.4 57.1 12.8 0.0 2.8 100.0
Low income
26.8 39.8 9.1 24.3 0.0 100.0
Note: Due to rounding, certain columns or rows do not add up to100%. The matrix is calculated from import data. It refers exclusively to manufactured products, so it does not include crude oil and other products from mining and quarrying. Detailed export data from India were not available for2008in the chosen trade classification (HS2007). Exporters are shown in rows and destination markets in columns. Each cell shows the share of total imports for acertain country from an exporting country. For example,36.1% of Upper medium income countries imports origin in the EU-27. The last row sums up each exporting countrys share for every importing country. Source: own calculations using COMTRADE data.
The most widely used measure of intraindustry trade (IIT) is the GrubelLloyd (GL) index. The GL index is sensitive to the level of aggregation of industries or products: the higher the level of aggregation of industries, the higher the GL index.75 The reason for this property of the GL index is that the absolute value of net trade when the industries are defined on ahigher level of aggregation, e.g.4-digit,
is equal to or less than the sum of the absolute values of net trade when the industries are defined on alower level of aggregation, e.g.6-digit. For example, net trade with different signs on the lower level of aggregation can cancel out at the higher level of aggregation. The index ranges from 0 (no IIT) to 1 (all trade is intraindustry), cf.Box IV.6.
Box IV.6: Intraindustry trade

The GL index for product i (where Xand Mstand for exports and imports, respectively) is defined as follows:
The GL index can be defined across products as follows:
75
Put differently, the higher the number of industries (products), the lower the value of the GL index.
121

Applying the GL index for EU-27trade in manufactured products with four groups of countries, classified by income level, shows that the value of the GL index increases with the level of income of the trade partner.76 The GL index is0.09for trade with lowincome countries,0.26for trade with lowmedium income countries,0.30for trade with uppermedium income countries, and 0.61 for trade with highincome countries. This shows that trade with industrialised countries has a large component of intraindustry trade, while trade with lowerincome countries has alarge component of interindustry trade, cf.Figure IV.18.
Figure IV.18: GrubelLloyd index by income level of EU-27trade partner in2009

0.7
0.6
0.5
Grybel-Lloyd index in 2009
0.4
0.3
0.2
0.1
0.0 Low income Low medium income Upper medium income High income non EU-27
Trade partners country groups
Note: calculations based on asample of50506-digit products from HS2007classification. Source: own calculations using COMTRADE data.
76
The classification by income level that was used is the one from the World Bank. The country groups are: High nonEU: Australia, Bahamas, Bahrain, Brunei Darussalam, Canada, Croatia, China, Hong Kong SAR, Iceland, Israel, Japan, Rep. of Korea, Kuwait, China, Macao SAR, Oman, Neth. Antilles, New Zealand, Norway, Qatar, Saudi Arabia, Singapore, Switzerland, United Arab Emirates, USA. Uppermedium: Algeria, Argentina, Bosnia Herzegovina, Botswana, Brazil, Belarus, Chile, Colombia, Costa Rica, Cuba, Dominican Rep., Equatorial Guinea, Gabon, Jamaica, Kazakhstan, Lebanon, Libya, Malaysia, Mauritius, Mexico, Montenegro, Namibia, Panama, Russian Federation, Serbia, South Africa, Suriname, Trinidad and Tobago, Turkey, TFYR of Macedonia, Uruguay, Venezuela. Lowmedium: Albania, Angola, Azerbaijan, Armenia, Bolivia, Belize, Cameroon, Cape Verde, Sri Lanka, China, Ecuador, El Salvador, Djibouti, Georgia, Guatemala, Honduras, Indonesia, Iran, Iraq, Cte dIvoire, Jordan, Lesotho, Maldives, Mongolia, Rep. of Moldova, Morocco, Nicaragua, Nigeria, Paraguay, Peru, Philippines, TimorLeste, India, Swaziland, Syria, Thailand, Tunisia, Ukraine, Egypt. Low: Afghanistan, Bangladesh, Bhutan, Myanmar, Burundi, Cambodia, Central African Rep., Chad, Comoros, Congo, Dem. Rep. of the Congo, Benin, Ethiopia, Eritrea, Gambia, Ghana, Guinea, Haiti, Kenya, Dem. Peoples Rep. of Korea, Kyrgyzstan, Lao Peoples Dem. Rep., Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nepal, Niger, Pakistan, GuineaBissau, Rwanda, Senegal, Sierra Leone, Viet Nam, Somalia, Zimbabwe, Sudan, Tajikistan, Togo, Uganda, United Rep. of Tanzania, Burkina Faso, Uzbekistan, Yemen, Zambia.
122
IV.4 The role of technology in EU sectoral trade

Analysing trade performance in the four technology categories for individual MS shows that Cyprus, Hungary, Ireland and Malta have the highest revealed comparative advantages in high technology products.77 Conversely, Greece, Latvia and Portugal exhibit high RCAs in low technology products. Caution is needed when studying RCAs for individual countries as small countries with small manufacturing industries can have high RCAs due to afew relatively large firms which export large shares of their production.
The RCAs for different technology categories do not differ significantly for the EU-27 which has a slightly higher RCA in trade with mediumhigh technology products. Notwithstanding the high RCAs of certain individual EU countries, the US has the highest RCA index in high and mediumhigh technology products in comparison with the EU as awhole and Japan or the BRIC countries. Japans comparative advantage is particularly strong in mediumhigh technology products. China has adual structure, with ahigh RCA in both high- and lowtechnology products while Russia only has aRCA larger than one in trade with mediumlow technology products, cf. Table IV.13.
Table IV.13: RCA by technology category in2009: EU countries, US, Japan and Brazil, China, India and Russia
High Tech
Austria Belgium Bulgaria Cyprus Czech Rep. Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom EU-27 Japan USA Brazil China India Russia 0.54 0.97 0.36 1.70 0.85 0.52 0.30 0.69 1.07 0.76 0.66 1.60 2.05 0.38 0.60 0.23 0.41 2.66 1.08 0.57 0.33 0.46 1.07 0.62 0.49 0.86 1.10 0.84 0.81 0.93 0.39 1.49 0.41 0.08
Medium high tech

1.14 1.06 0.59 0.73 1.22 0.97 0.82 0.97 1.07 1.39 0.50 1.11 1.11 1.12 0.58 0.74 0.68 0.50 0.89 1.03 0.84 1.04 1.03 1.25 1.18 1.01 1.10 1.14 1.49 1.25 0.71 0.67 0.51 0.46
Medium low tech

1.02 0.92 1.75 0.51 0.95 0.93 1.48 1.07 0.78 0.77 1.45 0.56 0.14 1.14 1.13 1.67 1.86 0.50 0.92 1.22 1.09 1.22 1.09 1.04 0.93 0.97 0.88 0.89 0.97 0.89 0.95 0.88 2.06 2.97
Low Tech
1.20 1.02 1.65 1.43 0.75 1.75 1.58 1.35 1.08 0.75 1.90 0.62 0.66 1.28 2.22 1.57 1.23 0.80 1.27 1.14 2.06 1.26 0.72 0.86 1.31 1.19 0.82 1.03 0.18 0.68 2.45 1.30 1.33 0.60
Source: own calculations using Comtrade data.

77
The taxonomy used in section III.2.2 was adapted to trade product categories.
123
IV.5 Trade in intermediate goods

This section aims at providing information about how the globalisation process and increased trade in intermediate goods have impacted on the trade performance of EU industries. This is analysed in two ways. First, the extent of imported intermediates in exports for countries and industries is analysed. This is followed by analysis of the competitiveness of EU manufacturing in intermediate trade. The EU manufacturing industry is compared with those of the BRIC countries, Japan and the USA. A distinct feature of the increased globalisation is the fragmentation of firms value chains and establishment of crossborder networks by an increasing number of firms. This implies that imports and exports move together, since companies production process are increasingly characterised
by sequential production in different locations depending on the comparative advantages of the locations. An increasing share of firms exports is composed of imports: for example, it is no longer valid to label aproduct which is exported from the UK as Made in UK since the production of components and services needed to produce the product has taken place in many locations across the world. The concept vertical specialisation [Hummels et al. (2001)] which is ameasure of the import content of exports, has been proposed to gauge this feature of trade with intermediate goods. The concept of vertical specialisation concerns both imports and exports of goods between at least three countries. Intermediates are imported in one country from asource country and used in the production of further intermediate goods or final goods which are exported to adestination country, cf. Box IV.7.
Box IV.7: Vertical specialisation

When an industry iin country kuses imported inputs to produce an exported good, vertical specialisation VSki is defined as:78
Vertical specialisation for acountry kequals the sum of VS for all i, VSk = i VSki. Relating it to exports yields vertical specialisation share of total exports for acountry:79
VS share of total exports for country k= where Xdenotes exports.80
Hummels et. at. (2001) p.78. The concept import content of exports is sometimes used to describe the same phenomena, OECD (2010). 80 See Hummels et. al. (2001) p.79for details. It is shown that vertical specialisation for acountry kis an exportweighed average of the sector vertical specialisation export shares. The equivalent matrix notation of the expression above is uAM[I AD]-1X /Xk, where uis avector of1s, AM is the nx nimported coefficient matrix, Iis the identity matrix, AD is the nx ndomestic coefficient matrix, Xis nx1vector of exports, Xk is total country exports and nis the number of sectors. In order to calculate the shares for sectors, Xis replaced by an xn vector with sector exports in the diagonal and zeros elsewhere. See OECD (2010) for details.
78 79
124
The import dependence of exports, vertical specialisation share of total exports, increased in almost all OECD countries between1995and2005. Vertical specialisation is most pronounced in small countries depending on imports for intermediate goods and countries hosting a large
number of multinational firms. Relatively small EU countries such as Estonia, Hungary and Ireland show high import dependencies of exports compared to France, Germany and the UK, cf. Figure IV.19.
Figure IV.19: Vertical specialisation of exports by country in1995and2005(%)

70
60
50
40
30
20
10
0 Luxembourg Hungary Estonia Ireland Slovak Republic Czech Republic Slovenia Belgium Portugal Korea Mexico Finland Netherlands Denmark Austria Spain Sweden Poland Italy Romania China Canada Germany Greece France OECD Turkey Chile United Kingdom New Zealand Israel Indonesia South Africa Norway Japan Brazil Australia Russian Federation India United States
Source: OECD (2010). OECD Economic Globalisation Indicators.
Vertical specialisation as share of total industry expor ts increased in almost all EU industries between 1995and2005. Vertical specialisation is more pronounced in basic EU industries which use arelatively large share of primary goods such as coke and refined petroleum, basic metals and chemicals. Also more knowledgeintensive industries, such as motor vehicles, radio, television and communication equipment industries, where parts and components are produced before they are exported to another country for assembly into final goods, show high degrees of vertical specialisation. The extent of
vertical specialisation is considerably lower in EU service industries, cf. Figure IV.20.81
81
Due to data constraints it was not possible to calculate vertical specialisation for the same years for all countries. Inputoutput tables for1995and2005were used for Austria, Belgium, Italy, Portugal, Spain and Sweden. Inputoutput tables for 1995and2007 were used for Denmark, Finland, France, Germany and Netherlands. Inputoutput tables for1996and2005were used for Slovenia. Inputoutput tables for1997and2005were used for Estonia. Inputoutput tables for1998and2005were used for Hungary and Ireland.
125
EU industrial structure 2011 Trends and Performance Figure IV.20: Import content of exports for15EU countries in1995and2005(%)
Vertical specialisation 1995 Education services Real estate services Membership organisation services n.e.c. Collected and puri ed water Other services Retail trade services Public administration and defence services Health and social work services Services auxiliary to nancial intermediation Sewage and refuse disposal services Financial intermediation services Insurance and pension funding services Hotel and restaurant services Other business services Recreational, cultural and sporting services Crude petroleum and natural gas Forestry Renting services of machinery and equipment Wholesale trade Computer and related services Post and telecommunication services Research and development services Construction work Trade, maintenance and repair services of motor vehicles and motorcycles Land transport Secondary raw materials Fishing products Agriculture and hunting Other mining and quarrying products Metal ores Supporting and auxiliary transport services Electrical energy, gas, steam and hot water Coal and lignite Printed matter and recorded media Other non-metallic mineral products Tobacco products Wood and products of wood and cork Food products and beverages Other manufactured goods n.e.c. Medical, precision and optical instruments Fabricated metal products Machinery and equipment n.e.c. Pulp, paper and paper products Water transport Other transport equipment Textiles Leather and leather products Air transport Rubber and plastic products Wearing apparel Chemicals Electrical machinery and apparatus n.e.c. Basic metals O ce machinery and computers Radio, television and communication equipment Motor vehicles Coke, re ned petroleum products and nuclear fuels Vertical specialisation 2005
10
20
30
40
50
60
Note: due to lack of data is was only possible to calculate vertical specialisation between1995and2005for15EU countries. The15EU countries are: Austria, Belgium, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Ireland, Netherlands, Portugal, Slovenia, Spain and Sweden. The calculations are based on inputoutput tables. Source: own calculations using Eurostat data.
126
The calculations of vertical specialisation assume that all imports originate in other countries and do not take into account that parts of imports may consist of products that originally are domestic. If, for example, Spain imports an electronic good and acomponent in that good previously was produced and exported from Spain, Spanish imports of
Beginning with the very broad categories of manufactured goods, China is the only country without comparative advantage in intermediate exports. Chinese and Indian industries seem to be dependent on imports of intermediate goods which are indicated by the high RCA indicator for intermediate imports, cf. Table IV.14.
Table IV.14: Indicators of RCA for manufactured goods in2000and2009

Intermediate goods Consumption goods Capital goods Goods n.e.c.
Exports Imports Exports Imports Exports Imports Exports Imports 2000 2009 2000 2009 2000 2009 2000 2009 2000 2009 2000 2009 2000 2009 2000 2009
EU-27 Brazil China India Japan Russia USA 1.2 1.5 0.9 1.4 1.4 2.3 1.4 1.1 1.7 0.9 1.3 1.5 2.2 1.3 1.0 1.2 1.4 1.6 1.1 0.9 0.8 0.9 1.1 1.4 1.5 1.1 0.6 0.8 0.5 0.5 1.1 1.0 0.2 0.1 0.4 0.5 0.4 0.8 0.9 0.2 0.1 0.4 0.9 0.5 0.1 0.2 1.3 1.3 1.2 1.1 0.6 0.1 0.2 1.2 1.6 1.3 1.7 1.2 1.2 0.2 2.3 0.3 1.8 1.7 0.7 2.3 0.7 2.0 0.2 1.2 1.0 1.1 1.0 0.5 0.7 1.2 1.1 0.9 1.2 1.1 0.8 0.7 1.5 1.2 1.8 0.5 0.2 0.4 0.6 0.1 1.2 1.6 0.6 0.2 0.6 0.5 0.8 2.4 1.1 0.4 0.2 0.2 0.5 0.2 1.8 1.2 0.6 0.3 0.3 0.4 1.0 1.3
that good appear as larger than they actually are. This then overestimates the vertical specialisation for Spain.82 Considering that an industrys exports may include alarge proportion of imports, the validity of the traditional way to measure the external competitiveness of industries must be in doubt. The RCAindices presented above do not take into account that alarge part of the exports can be produced in another location. Competitiveness is assessed below using an adjusted measure of revealed comparative advantages (RCA). The adjusted RCA measures are calculated for different types of goods defined according to the basic classes of goods in the system of national accounts (SNA): intermediate goods, capital goods, consumer goods and goods not else classified (goods n.e.c.).83 The adjusted RCA measures are calculated for both exports and imports. Especially interesting is the measure for imports of intermediates which shows whether acountry has comparative advantage of assembly.84
In the table above, very broad categories of manufactured goods were analysed. While these aggregates provide some useful information regarding specialisation patterns across countries, the aggregates necessarily mean that industry differences are hidden. Looking more closely at a disaggregation of intermediate goods allows for separation of manufactured goods into a classification according to technological intensity. Of the BRIC countries, only China seems to have comparative advantages in exports of hightech intermediate exports. The high RCAs for imports indicate that China also has comparative advantages in the assembly of intermediate goods in medium hightech and hightech industries. 85 However, the EU, Japan and the US also have comparative advantages in assembling hightech goods, although not to the same extent. The results in the table below are therefore not conclusive on this point, cf. Table IV.15.
Kommerskollegium (2010). See also Hummels et. al. (2001) for amore detailed discussion. 83 The categories of goods in SNA consist of aggregation of the goods classified according to the Broad Economic Category (BEC) classification. BEC consists of seven types of goods: consumer goods, capital goods, industrial supplies, fuels, transport equipment, food and beverages and goods not elsewhere specified. 84 See OECD (2010) and Ng and Yeats (1999) for discussions of these RCA measures.
82
85
where int denotes intermediate goods, iindustry and ccountry. See Ng and Yeats (1999) and OECD (2010) for adiscussion of this indicator.
127
EU industrial structure 2011 Trends and Performance Table IV.15: Indicators of RCA for intermediate goods according to technological intensity in2009
Low Tech
Brazil China EU-27 India Japan Russia USA 2.4 1.5 0.9 1.1 0.2 0.2 0.7
Exports Medium Medium Low Tech High Tech

0.9 0.7 0.9 1.8 0.9 2.6 1.0 0.7 0.7 1.2 0.5 1.7 0.2 1.3
High Tech
0.4 1.6 1.0 0.3 1.0 0.0 0.9
Low Tech
0.5 0.5 1.2 0.6 1.6 1.6 1.0
Imports Medium Medium Low Tech High Tech

0.9 0.8 1.0 1.4 0.8 0.7 0.9 1.5 1.2 0.8 1.0 0.8 1.2 1.0
High Tech
1.0 1.4 1.1 0.8 1.0 0.8 1.2
Even though the results in the table above are based on less aggregated data than in table IV.14, these aggregates also mask industry differences. There are differences even within industries, as different firms produce different varieties of goods. These varieties may not be substitutes if they differ in terms of quality: one way to analyse this is by looking at unit values. Unit values, trade values divided by trade volumes, are often used as indicators of price and qualities of different goods. The rationale is that countries exporting at higher unit values offer higher quality products. Unit values should, however, be used with caution. Unit values are imprecise measures of quality since high values could be the results of higher prices for similar products, higher quality or merely alarger share of products with higher unit values. The imprecise nature of this measure increases with the level of aggregation that unit values are calculated for.86
Relative unit values for each country have been calculated by division of the countries unit values for industries in different technological intensities by unit values for world exports and imports for corresponding industries. Unit values above one indicate arelatively high quality of products. EU-27, Japan and US exports seem to be of higher quality than BRIC country exports: Chinese exports of medium lowtech goods and Indian lowtech goods are exceptions. The very high unit values of Chinese imports of hightech goods stand out in the table. Chinese imports of high tech goods are apparently relatively expensive and of high quality. The result confirms the findings from the table above, indicating that China has acomparative advantage in assembly of hightech goods, cf. Table IV.16.
Table IV.16: Export and import unit values of intermediates according to technological intensity in2009
Low Tech
Brazil China EU-27 India Japan Russia USA 0.7 0.4 2.3 2.9 2.5 0.2 1.1
Exports Medium Medium Low Tech High Tech

0.8 1.4 1.2 0.8 1.3 0.5 0.9 0.7 0.9 1.5 0.7 1.6 0.1 0.9
High Tech
0.3 0.8 1.8 0.1 1.8 0.6 1.6
Low Tech
1.0 0.5 1.5 0.6 1.5 1.4 2.0
Imports Medium Medium Low Tech High Tech

1.0 0.9 0.9 1.3 1.0 1.5 0.9 0.5 0.8 1.2 0.3 1.6 1.3 1.6
High Tech
0.9 3.5 1.4 0.7 1.5 0.9 2.0
The OECD (2011) presents more detailed analyses which confirm this picture. Half of the exports of high income countries such as the US, Japan, Germany and France are exports in the high quality range while some20% to30%
of the exports of China and other emerging countries are in the high quality range. This latter group of countries export relatively more of lower quality exports.87
86
See OECD (2011) for amore detailed discussion.
87
See OECD (2011).
128
IV.6 International movement of factors of production

IV.6.1 FDI
The globalisation of economic activity shows itself not only in increased trade but also in increased foreign direct investment (FDI) which displayed a higher growth than trade for at least the last15years. 88 FDI is undertaken by multinational enterprises (MNEs which can be said to be either vertically or horizontally integrated. Vertically integrated MNEs undertake FDI in order to acquire a supplier or raw materials (backwards integration) or distributors of the product (forwards integration). The main motive for vertical integration is to reap the benefits of comparative advantages of different locations for parts of the MNE production processes. Horizontal integration often
implies duplication of the firms activities, i.e. localisation of the same parts of the production process in different countries. For the host country, FDI is asource of foreign capital. The local economy often also benefits from the import of knowledge transfer, such as new management techniques and more sophisticated technologies, as well as easier access to international financial markets and products.89 The stocks of both inward and outward EU FDI are concentrated in the financial and real estate sectors. The high share of FDI in the financial sector in2007is the result of the internationalisation of financial firms. In absolute terms, financial intermediation, real estate and business activities represent almost two thirds of overall outward EU FDI stock and more than two thirds of inward EU stock of foreign direct investment, cf. Figures IV.21 andIV.22.
Figure IV.21: Outward EU foreign direct investment stock in2007

100 90 80 70 60 50 40 30 20 10 0 Financial intermediation Real estate and business activities Telecommunications Manufacture of chemicals and chemicals products Mining and quarrying Wholesale trade Extraction of petroleum and gas Other
88
OECD (2010). OECD Globalisation indicators.
89
Eurostat (2007b).
129
EU industrial structure 2011 Trends and Performance Figure IV.22: Inward EU Foreign direct investment stock in2007
100 90 80 70 60 50 40 30 20 10 0 Financial intermediation Real estate and business activities Wholesale trade Manufacture of chemicals and chemicals products Mining and quarrying Extraction of petroleum and gas Other
IntraEU FDI illustrates the achievements of the single market in the EU. Overall, about62% of inward EU FDI stock originates from other MS. More than two thirds of inward EU FDI is owned by MNEs in the following sectors: real estate,
hotels and restaurants, trade and repair of motor vehicles, telecommunications, retail trade, rubber and plastic products and other business activities, cf. Figure IV.23.
Figure IV.23: Share of the inward EU FDI stock owned by EU firms in2007
Real estate Hotels and restaurants Trade and repair of motor vehicles Telecommunications Retail trade Rubber and plastic products Other business activities Supporting and auxiliary transport activities; activities of travel agencies Financial intermediation Wholesale trade Total Textiles and wearing apparel O ce machinery and computers Recreational, cultural and sporting activities Research and development Computer activities Air transport Agriculture and shing Electricity, gas and water Food products Construction Radio, television, communication equipments Wood, publishing and printing Mechanical products Renting of machinery and equipment without operator and of personal and household goods Land transport Re ned petroleum products and other treatments Metal products Water transport Manufacture of chemicals and chemicals products Mining and quarrying Extraction of petroleum and gas Post and courier activities
10
20
30
40
50
60
70
80
130
In many sectors, outward EU-27FDI stock is greater than total inward EU-27FDI stock. Vertical backward integration by EU-27MNEs seems to be the dominant motive, judging from the sectoral distribution of the relative outward and inward stocks. This is illustrated by the resourcedriven sectors: refined petroleum products, mining and quarrying,
extraction of petroleum and gas and metal products. Horizontal integration, in order to gain access to new markets or create localised, marketoriented knowledge which helps firms to adapt existing technologies and products to foreign markets, may explain the relatively large outward EU-27stock in telecommunication markets, cf. Figure IV.24.
Figure IV.24: EU-27outward FDI stock to the rest of the world/EU-27inward FDI stock from the rest of the world in2007(ratio)
Telecommunications Re ned petroleum products and other treatments Mining and quarrying Electricity, gas and water Extraction of petroleum and gas Metal products Post and courier activities Mechanical products Water transport Land transport Manufacture of chemicals and chemicals products Radio, television, communication equipments Construction Food products TOTAL Hotels and restaurants O ce machinery and computers Rubber and plastic products Financial intermediation Air transport Renting of machinery and equipment without operator and of personal and household goods Retail trade Agriculture and shing Computer activities Other business activities Wood, publishing and printing Wholesale trade Supporting and auxiliary transport activities; activities of travel agencies Research and development Recreational, cultural and sporting activities Trade and repair of motor vehicles Real estate Textiles and wearing apparel 0 1 2 3 4 5 6
131

The most FDIintensive sector in the EU-27is financial intermediation. It is highly internationalised, as both outward and inward FDI in the EU are relatively important. Other sectors in which EU firms largely invest outside the EU are resourcerich sectors (refined petroleum, extraction of petroleum and gas and mining and quarrying) or sectors characterised by marketseeking opportunities telecommunications. There is abalance between inward and outward FDI in the relative FDI intensive sectors chemicals, other business activities, office machinery and computers and post and telecommunication, cf.FigureIV.25.
Figure IV.25: Sectoral share in FDI stock relative to share in value added EU-27in2007
Share of FDI in the country relative to share in total VA Share of FDI abroad relative to share in total VA
Financial intermediation Re ned petroleum products and other treatments Extraction of petroleum and gas Mining and quarrying Manufacture of chemicals and chemicals products Other business activities Post and telecommunications O ce machinery and computers Food products Water transport Manufacturing Radio, television, communication equipments Electricity, gas and water Real estate Mechanical products Rubber and plastic products Metal products Wholesale trade Wood, publishing and printing Renting of machinery and equipment without operator and of personal and household goods Computer activities Hotels and restaurants Retail trade Trade and repair of motor vehicles Supporting and auxiliary transport activities; activities of travel agencies Air transport Textiles and wearing apparel Land transport Construction 0 1 2 3 4 5 6 7 8 9
Note: FDI intensity is measured as the ratio between the share of asectors FDI in total FDI to the share of the sectors value added to total value added. Source: own calculations using Eurostat data.
132
IV.6.2 Internationalisation of R&D

Another feature of increased globalisation is the internationalisation of corporate research, development and innovation (R&D&I) activities.90 Establishing R&D&I activities abroad is an opportunity to access knowledge,
which is not necessarily available in the home country. It is also away to customise the products and services offered to local markets abroad. Locating R&D&I abroad is often anatural extension of the establishment of production activities. Patent data allows for quantifying this trend. The indicator provides asectoral overview, cf.Box IV.8.
Box IV.8: Measuring the internationalisation of R&D

There are various ways to measure the internationalisation of R&D&I activities: through patent data; through surveys such as the Community innovation survey and the European Manufacturing survey; and by using data on R&D expenditures of foreign affiliates (published by national statistical offices). As this publication focuses on information at sectoral level, the first type of indicator patents was the most suitable. The other two approaches are not used in this publication because they lack detailed sectoral perspectives. Apatent provides both the location of the inventor and the location of the applicant. Based on these two pieces of information, one can determine whether the patent is domestic or foreignowned. Moreover, patent data is available for many years, countries and sectors. There are also intrinsic limits in using apatent indicator: not all inventions can be patented, not all patents lead to aconcrete application, and in certain sectors there are more incentives to patent than in others.
Source: European Competitiveness Report2010.
Internationalisation of R&D has increased considerably in the EU. The share of foreign owned patent applications in the EU at the EPO increased from some10% in1990to17%
in2007. The largest increase has been recorded by intraEU patent applications, cf. Figure IV.26.
Figure IV.26: Share of foreignowned patents in EU-27patent applications1990-2007(%)

9 8 7 6 5 4 3 2 1 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Non-european countries Other European countries Intra-EU
Note: Pa tents applications at the EPO. Source: OECD FATS database US Department of Commerce, ZEW/AIT calculations. 90
90
See chapter3Foreign corporate R&D and innovation in the European union in the European competitiveness report2010for more detailed analyses.
133

The most internationalised manufacturing industries in terms of foreignowned patents in the EU-27 are manufacture of radio, TV & communication equipment, food products and beverages, office machinery, chemicals and pharmaceuticals, cf. Figure IV.27.
Figure IV.27: Share of foreignowned patents in EU manufacturing industries2003-07(%)

25
20
15
10
Radio, TV & communications eq.
Electronic valves and tubes
Pharmaceuticals
Printing and publishing
Chemicals
Pulp and paper
Textiles
Oce machinery
Other manufacturing
Scientic and other instruments
Rubber and plastics
Non-metallic mineral products
Coke and rened petroleum
Machinery nec.
Other transport eq.
Electrical machinery
Motor vehicles
Basic metals
Clothing
Note: Patents are in absolute numbers. Source: EPO, ZEW/AIT calculations.
Outward patenting and R&D outside the own country is still relatively modest. On average, only10% of all EU27patents were granted abroad between2003and2007;
this is the same level as US patents while BRIC countries showed asomewhat larger share of outward patenting, cf.FigureIV.28.
Figure IV.28: Share of overseas patents of total patents applications1991-95and2003-07(%)

16 2003-2007 1991-1995 14
12
10
0 EU US JP BRICs
Source: OECD Triadic patent database, ZEW/AIT calculations.
134
Leather and footware
Food and drink
Metal products
Tobacco
The US is the most important location for EU outward R&D, accounting for 60 % of overseas patents applied by EU entities at the EPO. The BRIC share is still small but rising fast
and is now larger than the Japanese share of EU outward patenting, cf. figure IV.29.
Figure IV.29: Location of overseas patents applied by the EU-27at EPO1990-2006(%)

70
60
50 ROW Korea BRICs Japan Canada Other European Countries US
40
30
20
10
0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: European Patent Office, ZEW/AIT calculations.
135
Annexes
A.1 Statistical nomenclature
Table A.1.1 and Table A.1.2 summarise, in the first two columns, the codes and names of sectors in the nomenclature of economic activities, NACE Rev. 1and NACE Rev. 2. The third column contains the abridged versions of sector names used in the figures and tables. The acronyms in the fourth column are those used in the scatter plots.
Table A.1.1: Sectoral nomenclature for economic activities NACE rev.1.1

Code
a b c ca cb d da da15 da16 db db17 db18 dc dc19 dd dd20 de de21 de22 df Fishing Mining and quarrying Mining and quarrying of energy producing materials Mining and quarrying except energy producing materials Manufacturing Manufacture of food products; beverages and tobacco Manufacture of food products and beverages Manufacture of tobacco products Manufacture of textiles and textile products Manufacture of textiles Manufacture of wearing apparel; dressing; dyeing of fur Manufacture of leather and leather products Tanning, dressing of leather; manufacture of luggage Manufacture of wood and wood products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of pulp, paper and paper products; publishing and printing Manufacture of pulp, paper and paper products Publishing, printing, reproduction of recorded media Manufacture of coke, refined petroleum products and nuclear fuel
NACE Rev.1.1
Agriculture, hunting and forestry
NACE Rev.1.1(short)
Agriculture and forestry Fishing Mining and quarrying Mining of energy products Other mining Manufacturing Food, drinks and tobacco Food and drink Tobacco Textiles and clothing Textiles Clothing Leather and footwear Leather and footwear Wood and wood products Wood and wood products Pulp, paper and publishing Pulp and paper Printing and publishing Refined petroleum
Acronym
agri fish mine othmin manuf foodtob food tobac textcloth text cloth foot foot wood wood paper paper print refin >>>
137

Code
df23 dg dg24 dh dh25 di di26 dj dj27 dj28 dk dk29 dl dl30 dl31 dl32 dl33 dm dm34 dm35 dn dn36 dn37 e e40 e41 f f45 g g50 g51 g52 h h55 i i60 i61 i62 i63 i64 j j65 j66 j67
NACE Rev.1.1
Manufacture of coke, refined petroleum products and nuclear fuel Manufacture of chemicals, chemical products and manmade fibres Manufacture of chemicals and chemical products Manufacture of rubber and plastic products Manufacture of rubber and plastic products Manufacture of other nonmetallic mineral products Manufacture of other nonmetallic mineral products Manufacture of basic metals and fabricated metal products Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment Manufacture of machinery and equipment n.e.c. Manufacture of machinery and equipment n.e.c. Manufacture of electrical and optical equipment Manufacture of office machinery and computers Manufacture of electrical machinery and apparatus n.e.c. Manufacture of radio, television and communication equipment and apparatus Manufacture of medical, precision and optical instruments, watches and clocks Manufacture of transport equipment Manufacture of motor vehicles, trailers and semitrailers Manufacture of other transport equipment Manufacturing n.e.c. Manufacture of furniture; manufacturing n.e.c. Recycling Electricity, gas and water supply Electricity, gas, steam and hot water supply Collection, purification and distribution of water Construction Construction Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods Sale, maintenance and repair of motor vehicles Wholesale trade and commission trade, except of motor vehicles and motorcycles Retail trade, except of motor vehicles, motorcycles; repair of personal and household goods Hotels and restaurants Hotels and restaurants Transport, storage and communication Land transport; transport via pipelines Water transport Air transport Supporting and auxiliary transport activities; activities of travel agencies Post and telecommunications Financial intermediation Financial intermediation, except insurance and pension funding Insurance and pension funding, except compulsory social security Activities auxiliary to financial intermediation
NACE Rev.1.1(short)
Refined petroleum Chemicals Chemicals Rubber and plastics Rubber and plastics Nonmetallic mineral products Nonmetallic mineral products Basic metals and metal products Basic metals Metal products Machinery n.e.c. Machinery n.e.c. Electrical and optical equipment Office machinery Electrical machinery Radio, TV & communic. eq. Scientific and other instruments Transport equipment Motor vehicles Other transport eq. Other manufacturing Furniture; other manufacturing Recycling Electricity, gas and water supply Electricity and hot water supply Collection and distribution of water Construction Construction Wholesale and retail trade Sale and repair of motor vehicles Wholesale trade Retail trade Hotels and restaurants Hotels and restaurants Transport and communication Inland transport Water transport Air transport Supporting transport activities Communications Financial intermediation Financial intermediation Insurance and pension funding Activities auxiliary to financial intermediation
Acronym
refin chem chem plas plas miner miner metal metal metpr machin machin elecopt offmac elecmac telecom instr transeqpt motor trans othman furnit recyc electr
const
wholretra salemot wholtr retra hotel hotel transcom inltran watran airtran suptran comm fin finint insur auxfin >>>
138
Annexes
Code
k k70 k71 k72 k73 k74 l m n o
NACE Rev.1.1
Real estate, renting and business activities Real estate activities Renting of machinery and equipment without operator and of personal and household goods Computer and related activities Research and development Other business activities Public administration and defence; compulsory social security Education Health and social work Other community, social, personal service activities
NACE Rev.1.1(short)
Real estate activities Renting of machinery and equipment Computer and related activities Research and development Other business activities Public administration Education Health and social work Other services
Acronym
reest rentm compu r&d pubadmin educ health othser
Real estate and business activities realbus
Table A.1.2: Sectoral nomenclature for economic activities NACE rev.2

Code
A B C C10 C11 C12 C13 C14 C15 C16 C17 C18 C19 C20 C21 C22 C23 C24 C25 C26 C27 C28 C29 C30 C31 C32 C33 D D35 Mining and quarrying Manufacturing Manufacture of food products Manufacture of beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of pulp, paper and paperboard Printing and reproduction of recorded media Manufacture of coke and refined petroleum products Manufacture of chemicals and chemical products Manufacture of basic pharmaceutical products and pharmaceutical preparations Manufacture of rubber and plastic products Manufacture of other nonmetallic mineral products Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machinery and equipment n.e.c. Manufacture of motor vehicles, trailers and semitrailers Manufacture of other transport equipment Manufacture of furniture Other manufacturing Repair and installation of machinery and equipment Electricity, gas, steam and air conditioning supply Electricity, gas, steam and air conditioning supply
NACE Rev.2
Agriculture, forestryand fishing
NACE Rev.2(short)
Agriculture and forestry Mining and quarrying Manufacturing Food Beverages Tobacco Textiles Clothing Leather & footwear Wood & wood products Paper Printing Refined petroleum Chemicals Pharmaceuticals Rubber & plastics
Acronym
agri mine manuf food beverag tobac text cloth foot wood paper print refin chem pharma plas
Nonmetallic mineral products miner Basic metals Metal products Computers, electronic & optical Electrical equipment Machinery n.e.c. Motor vehicles Other transport eq. Furniture Other manufacturing Repair of machinery Electricity and gas Electricity and gas metal metpr comput electreq machin motor trans furnit othmanuf repair electr electr >>>
139

Code
E E36 E37 E38 E39 F F41 F42 F43 G45 G46 G47 H H49 H50 H51 H52 H53 I I55 I56 J J58 J59 J60 J61 J62 J63 K K64 K65 K66 L L68 M M69 M70 M71 M72 M73 M74 M75 N N77
NACE Rev.2
Water supply; sewerage, waste management and remediation activities Water collection, treatment and supply Sewerage Waste collection, treatment and disposal activities; materials recovery Remediation activities and other waste management services Construction Construction of buildings Civil engineering Specialised construction activities Wholesale and retail trade and repair of motor vehicles and motorcycles Wholesale trade, except of motor vehicles and motorcycles Retail trade, except of motor vehicles and motorcycles Transportation and storage Land transport and transport via pipelines Water transport Air transport Warehousing and support activities for transportation Postal and courier activities Accomodation and food service activities Accommodation Food and beverage service activities Information and Communication Publishing activities Motion picture, video and television programme production, sound recording and music publishing activities Programming and broadcasting activities Telecommunications Computer programming, consultancy and related activities Information service activities Financial and insurance activities Financial service activities, except insurance and pension funding Insurance, reinsurance and pension funding, except compulsory social security Activities auxiliary to financial services and insurance activities Real Estate activities Real estate activities Professional, Scientific and Technical activities Legal and accounting activities Activities of head offices Architectural and engineering activities Scientific research and development Advertising and market research Other professional, scientific and technical activities Veterinary activities Administrative and support service activities Rental and leasing activities
NACE Rev.2(short)
Water supply Water collection Sewerage Waste collection Remediation activities Construction Construction buildings Civil engineering Specialised construction Wholesale and retail trade Wholesale trade Retail trade Transportation & storage Inland transport Water transport Air transport Wharehousing & support activities for transportation Postal & courier Accomodation & food Accommodation Food & beverage Publishing Motion picture, TV & Music Programming & broadcasting activities Telecommunications Computer programming & consultancy activities Information Financial activities Insurance activities Activities auxiliary to financial and insurance activities Real Estate activities
Acronym
water Watercol Sewer wastcol othwast const build civeng Specconstr wholretra wholtr retra trans inltran watran airtran wharehous postal accomodfood accomod foodbev publish tvmusic broadcast telecom compu infocom financ insur auxfinancinsur reest
Information & Communication infocom
Financial & insurance activities financinsur
Real Estate activities reest Professional, Scientific and scientech Technical activities Legal and accounting activities legaccount Activities of head offices Architecture & Engineering Scientific research and development Advertising & market research Other professional, scientific and technical activities Veterinary activities Administration Rental & leasing activities headof archiengin scienc advert othscienc veteri admin rental >>>
140
Annexes
Code
N78 N79 N80 N81 N82 O O84 P Q Q86 Q87 Q88 R R90 R91 R92 R93 S S94 S95 S96 T T97 T98 U U99
NACE Rev.2
Employment activities Travel agency, tour operator and other reservation service and related activities Security and investigation activities Services to buildings and landscape activities Public Administration and Defence Public administration and defence Education Human health and social work activities Human health activities Residential care activities Social work activities without accommodation Arts, entertainment and recreation Creative, arts and entertainment activities Libraries, archives, museums and other cultural activities Gambling and betting activities Sports activities and amusement and recreation activities Other services activities Activities of membership organisations Repair of computers and personal and household goods Other personal service activities Activities of households as employers Activities of households as employers of domestic personnel Undifferentiated goods- and servicesproducing activities of private households for own use Activities of extraterritorial organisations and bodies Activities of extraterritorial organisations and bodies
NACE Rev.2(short)
Employment activities
Acronym
empl
Supporting transport activities suptran Security & investigation activities Services to buildings Public Administration Public Administration Education Human health activities Residential care activities Social work activities Arts & entertainment Creative activities Cultural activities Gamble Leisure Other services activities Membership organisations Computer and related activities Other personal service activities Households as employers Households as employers of domestic personnel Private households for own use Extraterritorial organisations and bodies Extraterritorial organisations and bodies secur servbuild officesup pubadmin pubadmin educ health residcare socwork artentertain creative cultu gambl leis othser memberorg compu othpersser househol househol privhousehol extraorg extraorg
Office administrative, office support and other business support activities Office support
Human health and social work health
Table A.1.3presents final consumption expenditure of households by consumption purpose (COICOP) on a3-digit level for different goods and services.
Table A.1.3: Sectoral nomenclature for consumption activities (COICOP)

Total
cp01 cp011 cp012 cp02 cp021 cp022 cp023 cp03 cp031 cp032 cp04 cp041
Total
Food and nonalcoholic beverages Food Nonalcoholic beverages Alcoholic beverages, tobacco and narcotics Alcoholic beverages Tobacco Narcotics Clothing and footwear Clothing Footwear including repair Housing, water, electricity, gas and other fuels Actual rentals for housing >>>
Total
cp042 cp043 cp044 cp045 cp05 cp051 cp052 cp053 cp054 cp055
Total
Imputed rentals for housing Maintenance and repair of the dwelling Water supply and miscellaneous services relating to the dwelling Electricity, gas and other fuels Furnishings, household equipment and routine maintenance of the house Furniture and furnishings, carpets and other floor coverings Household textiles Household appliances Glassware, tableware and household utensils Tools and equipment for house and garden >>>
141

Total
cp056 cp06 cp061 cp062 cp063 cp07 cp071 cp072 cp073 cp08 cp081 cp082 cp083 cp09 cp091 cp092 cp093
Total
Goods and services for routine household maintenance Health Medical products, appliances and equipment Outpatient services Hospital services Transport Purchase of vehicles Operation of personal transport equipment Transport services Communications Postal services Telephone and telefax equipment Telephone and telefax services Recreation and culture Audiovisual, photographic and information processing equipment Other major durables for recreation and culture Other recreational items and equipment, gardens and pets >>>
Total
cp094 cp095 cp096 cp10 cp101 cp102 cp103 cp104 cp105 cp11 cp111 cp112 cp12 cp121 cp122 cp123 cp124 cp125 cp126 cp127
Total
Recreational and cultural services Newspapers, books and stationery Package holidays Education Preprimary and primary education Secondary education Postsecondary nontertiary education Tertiary education Education not definable by level Restaurants and hotels Catering services Accommodation services Miscellaneous goods and services Personal care Prostitution Personal effects n.e.c. Social protection Insurance Financial services n.e.c. Other services n.e.c.
Table A.1.4presents the extended balance of payments services classification used in this publication. Royalties and
license fees were not included as it is not related to aspecial service activity.
Table A.1.4: Sectoral nomenclature for trade in services activities91

1. Transportation 2. Travel 3. Communications services 4. Construction services 5. Insurance services 6. Financial services 7. Computer and information services 8. Royalties and license fees 9. Other business services 10. Personal, cultural, and recreational services 11. Government services
91
For a more detailed description, see European Central Bank (2007).
142
Annexes Table A.1.5: Classification of products by activities (CPA)

Code
01 02 03 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 35 36 37 38 39 41 42 43 45 46 47 49 50 51 52 53 55 56 58 59 60 61 62 63
Description
Crop and animal production, hunting and related service activities Forestry and logging Fishing and aquaculture Mining of coal and lignite Extraction of crude petroleum and natural gas Mining of metal ores Other mining and quarrying Mining support service activities Manufacture of food products Manufacture of beverages Manufacture of tobacco products Manufacture of textiles Manufacture of wearing apparel Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper and paper products Printing and reproduction of recorded media Manufacture of coke and refined petroleum products Manufacture of chemicals and chemical products Manufacture of basic pharmaceutical products and pharmaceutical preparations Manufacture of rubber and plastic products Manufacture of other nonmetallic mineral products Manufacture of basic metals Manufacture of fabricated metal products, except machinery and equipment Manufacture of computer, electronic and optical products Manufacture of electrical equipment Manufacture of machinery and equipment n.e.c. Manufacture of motor vehicles, trailers and semitrailers Manufacture of other transport equipment Manufacture of furniture Other manufacturing Repair and installation of machinery and equipment Electricity, gas, steam and air conditioning supply Water collection, treatment and supply Sewerage Waste collection, treatment and disposal activities; materials recovery Remediation activities and other waste management services Construction of buildings Civil engineering Specialised construction activities Wholesale and retail trade and repair of motor vehicles and motorcycles Wholesale trade, except of motor vehicles and motorcycles Retail trade, except of motor vehicles and motorcycles Land transport and transport via pipelines Water transport Air transport Warehousing and support activities for transportation Postal and courier activities Accommodation Food and beverage service activities Publishing activities Motion picture, video and television programme production, sound recording and music publishing activities Programming and broadcasting activities Telecommunications Computer programming, consultancy and related activities Information service activities >>>
143

Code
64 65 66 68 69 70 71 72 73 74 75 77 78 79 80 81 82 84 85 86 87 88 90 91 92 93 94 95 96 97 98 99
Description
Financial service activities, except insurance and pension funding Insurance, reinsurance and pension funding, except compulsory social security Activities auxiliary to financial services and insurance activities Real estate activities Legal and accounting activities Activities of head offices; management consultancy activities Architectural and engineering activities; technical testing and analysis Scientific research and development Advertising and market research Other professional, scientific and technical activities Veterinary activities Rental and leasing activities Employment activities Travel agency, tour operator and other reservation service and related activities Security and investigation activities Services to buildings and landscape activities Office administrative, office support and other business support activities Public administration and defence; compulsory social security Education Human health activities Residential care activities Social work activities without accommodation Creative, arts and entertainment activities Libraries, archives, museums and other cultural activities Gambling and betting activities Sports activities and amusement and recreation activities Activities of membership organisations Repair of computers and personal and household goods Other personal service activities Activities of households as employers of domestic personnel Undifferentiated goods- and servicesproducing activities of private households for own use Activities of extraterritorial organisations and bodies
144
Annexes
A.2List of abbreviations
BEC Broad economic classification Brazil, Russia, India and China BRIC CPA Classification of products by activity Classification of individual consumption by COICOP purpose COMEXT Statistical database from and between European Union countries COMTRADE Commodity Trade Statistics Database European Patent Office EPO Foreign direct investment FDI IIT Intraindustry trade GDP Gross domestic product GFCF Gross fixed capital formation GL GrubelLoyd ICT Information and communication technologies IMF International Monetary Fund IO Inputouput M Imports NACE Nomenclature Gnrale des Activits conomiques dans les Communauts Europennes (French, EU classification system) OECD Organisation for Economic Cooperation and Development PAT Patent RCA Revealed comparative advantage R&D Research and development RTB Relative trade balance SBS Structural Business Statistics from Eurostat Specialisation index Si Unit labour cost ULC UN United Nations United Nations industrial development UNIDO organisation The United States Patent and Trademark Office USPO WTO World Trade Organisation X Exports
AT BE BG CY CZ DE DK EE ES EU EU-27 FI FR GR HU
Austria Belgium Bulgaria Cyprus Czech Republic Germany Denmark Estonia Spain European Union 27Member States of the European Union Finland France Greece Hungary
IE IT LT LU LV MT NL PL PT RO SE SI SK UK US
Ireland Italy Lithuania Luxembourg Latvia Malta Netherlands Poland Portugal Romania Sweden Slovenia Slovakia United Kingdom United States
Abbreviations
The following symbols are used in this publication: n.a. not available 0figure is zero or became zero due to rounding - not applicable Small discrepancies between constituent figures and totals are due to rounding. Closing date30/06/2011
145
References
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European Commission EU industrial structure 2011 Trends and Performance Luxembourg: Publications Office of the European Union 2011 148 pp. 21 x 29.7 cm ISBN 978-92-79-20733-4 doi:10.2769/28487
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The production of EU industrial structure is a response to the increasing interest in analysing the competitiveness of the EU economy from a sectoral perspective. This publication provides insight into the relative performance of individual industries, and contributes to explaining the competitiveness of the EU economy at large. The publication covers market sectors, from mining to market services, although, wherever necessary, it refers to the whole economy, including primary sectors and non-market services. The work is empirical and data oriented and consists of the creation and analysis of a system of statistical indicators on various facets of sectoral performance and competitiveness. The indicators cover fi elds of relevance to gain insight into the economics and policy issues of EU sectors. The publication applies the same set of indicators to all sectors and uses inputoutput data to go beyond the analysis of individual sectors separately buy capturing sectoral interrelations, such as those between manufacturing and services sectors. From a geographical point of view the publication covers the EU-27 as a whole and individual Member States and it also makes comparisons with other countries, such as the US, Japan and BRIC countries (Brazil, Russia, India, China), wherever possible. The 2011 edition of EU industrial structure covers the following topics: the recent economic downturn and its fragile recovery, EU sectoral structure, EU sectoral growth and the international competitiveness of EU industry. This publication follows the path laid by EU sectoral competitiveness indicators (2005) and EU industrial structure 2007 and EU industrial structure 2009.
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EU industrial structure

European Commission Enterprise and Industry

Trends and Performance

European Commission Enterprise and Industry

Cover page photo: Financial accounts Sean Gladwell #5173872

EU industrial structure 2011 Trends and Performance

EU industrial structure 2011 Trends and Performance

EU industrial structure 2011 Trends and Performance

The developing services economy

The role and importance of the EU manufacturing sector

EU industrial structure 2011 Trends and Performance

 See Chapter IV for adefinition of these types of services.

Increased internationalisation of EU industries

EU industrial structure 2011 Trends and Performance

The aftermath of the crisis along and uneven recovery(?)

I.1 Recession and recovery(?)

EU industrial structure 2011 Trends and Performance

I.1.1  Manufacturing recession and recovery(?)

Source: own calculations using Eurostat data.

ChapterI The aftermath of the crisis along and uneven recovery(?)

Downturns and recoveries in EU-27industrial production since1990

115 110 105 100

Source: own calculations using Eurostat data.

EU industrial structure 2011 Trends and Performance Figure I.3:

EU Manufacturing growth rates (T/T-12) from1991to2010(monthly data)

Source: own calculations using Eurostat data.

ChapterI The aftermath of the crisis along and uneven recovery(?)

Source: own calculations using Eurostat data.

Non-durables Intermediates Durables Consumer Capital 0 2 4 6 8 10 12 14 16 18 20 Months 22 24 26 28 30 32 34 36 38 40

Source: own calculations using Eurostat data.

EU industrial structure 2011 Trends and Performance

ChapterI The aftermath of the crisis along and uneven recovery(?)

Percentage of manufacturing industries with very low growth rates in1991-2011

Source: own calculations using Eurostat data.

EU industrial structure 2011 Trends and Performance

Table I.2: Growth and volatility in EU-27manufacturing industries1990-2011 (%)

Growth Cyclical intensity

Crisis production loss

Source: own calculations using Eurostat data.

ChapterI The aftermath of the crisis along and uneven recovery(?)

I.1.2 Services recession and recovery(?)

Figure I.8: Growth in EU services industries1996-2011(%)

I.2 Sector developments: the current recovery(?)

I.2.1  Recent developments in manufacturing industries

ChapterI The aftermath of the crisis along and uneven recovery(?)

Figure I.10: EU manufacturing diffusion index from January1991to June2011(monthly data)

Source: own calculations using Eurostat data.

Recent developments in EU manufacturing, mining, electricity and construction

Last six months

Post trough Spread last growth six months

Mining & quarrying Manufacturing Food Beverages

Last six months

Post trough Spread last growth six months

Source: own calculations using Eurostat data.

Source: own calculations using Eurostat data.

ChapterI The aftermath of the crisis along and uneven recovery(?)

Figure I.14: Increasing probabilities of contraction in the end of2011

Source: own calculations using Eurostat data.

EU industrial structure 2011 Trends and Performance

I.2.2  Recent developments in services industries

2010:08 2010:09 2010:10 2010:11 2010:12 2011:01 2011:02 2011:03

Source: own calculations using Eurostat data.

Box I.1: Data issues in measuring services activities

See Chapter IV for adefinition of these types of services.

I.1.1 Manufacturing recession and recovery(?)

I.2 Sector developments: the current recovery(?)

I.2.1 Recent developments in manufacturing industries

I.2.2 Recent developments in services industries

II.1 The shares of industries and sectoral specialisation in the EU

II.1.2 Member states sectoral specialisation

See section1.3in the European Competitiveness Report2010.