3 Revealed Strength

In this Chapter we argue that, in a market economy environment, current strength is a good predictor of future strength in producing and exporting certain products. Current strength indicates that crucial factors (such as skilled labour) are available and their prices are competitive, that knowledge and a network of suppliers are established and that the regulatory environment is conducive. While having a comparative advantage in a product provides some indication that a sector might grow in a country, the absence of a revealed comparative advantage does not imply that a country is unable to develop new strengths in the future. One of the building blocks of future comparative advantage – especially in new technologies – is innovation. Thus, countries that focus their patenting activity on specific technologies are likely to also have a comparative advantage in exporting the corresponding products.

Revealed strength in exports and technology

We first investigate which countries are already specialised in our four low-carbon technologies in term of trade and innovation. We focus on two indicators of relative strength

  • Revealed comparative advantage (RCA) assumes that market-based economies reveal their underlying comparative advantages by specialising in those goods and services in which they are comparatively good. The RCA for wind turbines in Denmark between 2011 and 2014 was above 50, because Denmark exported 50 times more wind turbines than one would expect of a country the size of Denmark (in terms of trade value).

  • Revealed technology advantage (RTA) is the equivalent to the revealed comparative advantage in terms of patenting.

Figure 3.1: Revealed comparative advantage and revealed technological advantage in 3-year periods between 2000 and 2014, Source: Bruegel based on EPO and PCT patent applications from EPO PATSTAT (EPO 2016), UN Comtrade (United Nations Statistics Division 2017).

The maps reveal a heterogenous picture of technological and export specialisation among EU countries over time. Poland had a comparative advantage in electric vehicles, which was a very narrow niche market in 2000 - 2010 . This comparative advantage vanished when the market grew. Then the west European car-making countries gained a competitive edge in the emerging segment which was preceeded by a technological specialisation in electric vehicles in France and Germany.

For batteries the EU as a whole has no comparative advantage or technological advantage. Only Belgium – with a global chemical industry cluster (including Umicore and Solvay) – has remained a main battery exporter.

The picture is similar for photovoltaic cells. Despite significant support for solar PV deployment in many EU countries (most notably the feed-in tariffs in Germany, Italy and Spain), none have been able to defend a comparative advantage in this technology. Photovoltaic technology patents illustrate well that our RTA measure does not capture absolute patent numbers, but countries’ relative specialisations. Germany and France generate many photovoltaic patents – many more than for wind turbines – but that is largely because the patent category is much wider.

Although wind turbine exports are dominated by Denmark, Germany and Spain, several EU countries have exhibited a degree of specialisation in wind turbine related patents during the past 15 years.