Structural Transitions to Electric Vehicle Production: Czech Republic

StructuralTransitionstoElectricVehicleProduction CzechRepublic StephenAyerstandNereeNoumonSIP/2023/013 IMFSelectedIssuesPapersarepreparedbyIMFstaffasbackgrounddocumentationforperiodicconsultationswithmembercountries.ItisbasedontheinformationavailableatthetimeitwascompletedonDecember12,2022.ThispaperisalsopublishedseparatelyasIMFCountryReportNo23/32. 2023 JAN ©2023InternationalMonetaryFundSIP/2023/013 IMFSelectedIssuesPaper EuropeanDepartment StructuralTransitionstoElectricVehicleProduction:CzechRepublicPreparedbyStephenAyerstandNereeNoumon* AuthorizedfordistributionbyMiguelSegovianoJanuary2023 IMFSelectedIssuesPapersarepreparedbyIMFstaffasbackgrounddocumentationforperiodicconsultationswithmembercountries.ItisbasedontheinformationavailableatthetimeitwascompletedonDecember12,2022.ThispaperisalsopublishedseparatelyasIMFCountryReport No23/32. ABSTRACT:SustainingtheimpressiveconvergencegainsallowedbytheCzechautomotivesectorhasbecomechallengingduetoitscomparativelylowervalueadded,lowerinvestmentsinresearchanddevelopment,andlowerskillsinthelabormarket.Usingastructuralmodelofglobalvaluechains,thepaperexaminespoliciestosmooththetransitiontotheproductionofelectricvehiclesinCzechia.Theanalysisexplorestheimpactsofincreasinglaborproductivity,boostingproductioncapabilities,andmovinguptheglobalvaluechain.Thesepolicieswerefoundtohavearelativelylowerimpactwhentheyshiftspecializationtowardslowervalue-addedstagesofproduction. RECOMMENDEDCITATION:AyerstS.andNoumonN.(2023) JELClassificationNumbers: E22,F23,J24,L62,L16,C54 Keywords: Automotiveindustry,CzechRepublic,Convergence,Electricvehicles,Globalvaluechains,Laborproductivity,StructuralPolicy Author’sE-MailAddress: SAyerst@imf.org;NNoumon@imf.org SELECTEDISSUESPAPERS StructuralTransitionstoElectricVehicleProduction CzechRepublic December12,2022 CZECHREPUBLIC SELECTEDISSUES PreparedbyStephenAyerstandNereeNoumon.AssistancewasprovidedbyRitzyDumoand IyadAlasal(allEUR). ApprovedBy TheEuropeanDepartment CONTENTS CZECHIA:STRUCTURALTRANSITIONSTOELECTRICVEHICLEPRODUCTION2 A.Background:AutomotiveProductioninCzechia2 B.AStructuralModeloftheAutomotiveGlobalValueChain5 C.TheTransitiontoElectricVehicleProduction8 D.ConclusionandPolicyRecommendations11 FIGURES 1.Cross-CountryComparisonofProductivityandR&D3 2.SectoralShareofCzechiaEconomy3 3.IntermediateSuppliersandConsumersfromCzechiaAutoSector4 4.ValueAddedandSkillIntensityoftheAutomotiveSector4 5.ElectricVehicleProductioninCzechia4 6.AutomotiveGlobalValueChainStructuralModelIllustration5 7.IllustrationoftheAutomotiveGVC7 8.TransitiontoElectricVehicleProduction8 9.ImpactofPolicyonEmploymentandValueAdded11 TABLE 1.CalibratedParameters7 ANNEX I.ModelDescriptionandCalibration14References13 CZECHIA:STRUCTURALTRANSITIONSTOELECTRICVEHICLEPRODUCTION1 Czechiaautomotivesector’shighintegrationintoglobalvaluechainsanditslargeeconomiccontributionhaveallowedCzechiatoexperienceaperiodofpersistentconvergencewithadvancedEuropeaneconomies.Atthesametime,sustainingthoseimpressivegainsissomewhatconstrainedbyCzechiaautomotivesector’scomparativelylowervalueadded,lowerinvestmentsinresearchanddevelopment,andlowerskillsinthelabormarket.ThesechallengesareexacerbatedbyinthecontextoftheEuropeanautomotivemarket’stransitiontoelectricvehicles(EV)forwhichproductiontendstobemoreskill-intensiveandconcentratedathighervalue-addedstagesofproduction.Thispaperexamines—throughthelensesofastructuralmodelofglobalvaluechains—policiesthatcouldsmooththetransitiontotheproductionofelectricvehiclesinCzechiaeconomycontext.Inparticular,thepaperanalyzestheimpactsofabroadsetofpoliciesrelatedtoincreasinglaborproductivity,boostingproductioncapabilitiesinthecurrentsetofspecialties,andmovinguptheglobalvaluechain. A.Background:AutomotiveProductioninCzechia 1.SustainingCzechia’sconvergencetowardmoreadvancedeconomies—whichhasbeendrivenmostlybytheautoindustry—wouldrequiremovingupglobalvaluechains.CzechiacurrentlystillliesbelowmanyadvancedeconomiesthoughabovemostemergingeconomiesintermsofGDP-per-capita(leftpanel,Figure1).2Czechia’srapidconvergencewasfacilitatedbyasuccessfulleveragingofitsautomotivesectorandgeographicproximitywithGermany,akeyplayerintheglobalautomotivemarket.Theeconomyhasnowenteredachallengingstageofitsdevelopment,whichrequirestransitioningtohighervalue-addedsegmentsofglobalvaluechainstosustaintheconvergenceprocessandfurthertapintoitsgrowthpotential.Czechia’slackofprogressonthisfrontarereflectedinrelativelylowerR&DspendingperinhabitantcomparedwithotheradvancedEuropeaneconomies(rightpanel,Figure1). 2.TheautomotivesectorisoneofthelargestsectorsinCzechiaintermsofoutputandemployment.Czechiamotorvehiclesector’svalueaddedandemploymentshares,stoodrespectivelyat 4.9and3.2percentasof2014(Figure2).Furthermore,sectorsadjacenttomotorvehicles,suchastradeofmotorvehiclesandrepairofequipment,arealsoimportantsectorsinCzechiaeconomy,reflectingthepositivespilloversoftheautoindustrytoCzechiaindustry.3 1Theanalysisbenefittedfromdiscussionswiththeauthorities,andthecommentsreceivedonthepresentationt