This working paper offers novel evidence and policy discussion that could aid the implementation of the European Union’s Open Strategic Autonomy and industrial policies for the twin transition. The analysis draws on theories from the capability-based and structural literature, relying on a methodological approach developed within the literature on economic complexity and geography. Specifically, we explore the relationship between EU countries' proximity to twin transition-related products, their trade dependencies and comparative advantage.

The findings are twofold. First, when we look at what countries have a productive structure that is the most aligned to twin transition products, we find that these are large manufacturing countries such as Germany and Italy. However, when we consider which countries are closest to twin transition products in relative terms – i.e. whether transition products are the closest to their productive structure – we find that it is often smaller countries, notably Sweden and Czechia, that have incentives to specialise in such products.

Second, we find that both the development of comparative advantage or a reduction of trade dependence is not closely related to measures of proximity. Conversely, we also find that distance is a good predictor of the likelihood of losing comparative advantage and increasing trade dependences. This means that on the one hand, policies aiming to develop comparative advantage in twin transition goods should focus on factors beyond proximity alone. On the other hand, such policies should focus on fostering broad and coherent technological and capability ecosystems, taking a systemic approach focused on complementarities in line with the structuralist and capabilities-based theory.

Moreover, and in light of the asymmetries among EU countries in their ability and incentives to diversify towards OSA and twin transition goods, it is necessary coordinate industrial policies across the EU to avoid an exacerbation of pre-existing inequalities that would be contrary to EU cohesion policy principles.

Read the document