Executive Summary

For many years the European Union’s growth model has been to find new markets for the products and services it is able to produce cheaper and better than most other countries. This model is under pressure. The number of under-exploited markets is shrinking, while new competitors emerge quickly, challenging the comparative advantage of the EU even in higher value added goods and services. To secure growth and jobs in Europe, it is likely to be necessary to move to a new growth model built on developing emerging sectors with high value added. But in which sectors can Europe grow, and what economic policies would work?

We propose a general approach that can be used to prioritise policies based on quantitatively localising sectors and regions with measurable growth potential. Sectors can be identified based on recent and expected growth of their global markets and the technology dynamics. We assess the potential of countries to excel in these emerging sectors based on their current export specialisation in this sector. This revealed comparative advantage indicates whether a country is better able than others to compete in this particular field. But even if a country is not yet specialised in a certain sector it might develop a comparative advantage over time, especially if the sector is based on rapid innovation. We thus propose to identify whether countries are particularly specialised in innovating in the identified sector based on patent data. Finally, certain sectors have commonalities. Even if a country is currently not good at exporting and patenting in a certain sector, it might easily acquire this capability if it is strong in nearby sectors. So we propose to also investigate the strength of countries in sectors found to be close to the identified sector, as a proxy for whether the country might have the potential to develop a comparative advantage in the identified sector.

Given global decarbonisation concerns, the wide array of low-carbon technologies offers significant growth potential. Some EU countries have already been able to develop a comparative advantage in wind turbines and electric vehicles, though the EU is less effective at exporting solar panels and batteries. Based on patenting activities we, however, see some potential – maybe not for entire countries but for some regions – to further specialise in all of these four low-carbon technologies.

A regional overview is valuable because it can help in targeting public investment (eg in infrastructure, research and education) to enable development in the most promising sectors/regions.