What drives the differences in domestic value added in exports between old and new EU member states?

Domestic value added in exports has lately become a key measure of a country's global competitiveness. This paper analyses the potential drivers of the differences in domestically generated value added in exported goods between 'new' (CEE-10) and 'old' (EU-15) countries. The analysis focuses on the role played by intangible investments, human capital and foreign direct investment. By studying export performance at the industry level for the period 2000-2011, this paper finds that differences in the share of domestically generated value added depend on investments in intangible capital, in particular investments in research and development. CEE-10 countries suffer from a distinct lack of investments in intangible capital, which is currently only sufficient to enable their mere participation in global value chains. Further, inward F.D.I. causes a reduction in demand for domestic inputs for both groups of countries and hence lowers D.V.A. in exports, while CEE-10 countries are also found to be upgrading global value chains by undertaking outward F.D.I.