Cost-competitiveness and structural change in value chains – vertically-integrated analysis of the European automotive sector

The arbitrage in labour costs is arguably one of the driving forces in the structural change of production in the era of globalization. We investigate the actual meaning of cost-competitiveness for the evolution of automotive value chains of the five largest European producers on a country-level in the period of 2000–2014. For this purpose, we develop an input-output framework of vertically-integrated analysis of unit labour costs (VULC). The econometric analysis, by means of panel-data ARDL model, demonstrated that the level of cost-competitiveness of the supplying economies was a major determinant of their increasing role in the European automotive value chains. This effect was however limited to peripheral economies, in line with the arguments of new international division of labour.