The role of twin transition in globalization patterns: how twin skills are able to spur FDI and exports.

The transition towards twin technologies is seen as a possible source for growth for firms due to the innovation processes necessary to support sustainable and digital practices. 

However, those simultaneous innovation processes also pose challenges with the risk of increasing the gap between advanced and lagging-behind regions due to their different propensities to adapt. 

The difference in propensity to adapt to the twin transition is given by the different composition in terms of capabilities, specialization in complex industries, and access to specific infrastructures. 

Once the transition is successful, regions become more attracted to Foreign Direct Investments (FDI), entering the globalization patterns.

The ST4TE report "The uneven regional implications of twin transition and globalisation" examines the contribution of both “pure” green, digital, and twin occupations and their “enabling” counterparts (occupations that have skills just connected at least once with green, digital, or twin) in attracting FDI and exports. 

From the identification of greenfield projects (cases of a foreign firm that decides to establish a new business operation in a host country) and brownfield deals (cases in which a foreign firm acquires an existing facility or business in a host country), the report shows that the most economically advanced regions in Europe are also the ones that are most involved in globalization processes.

The relation between green occupations and FDI is quite ambiguous. 

On one hand, economically advanced regions in Europe score low in the endowment of green and green-enabling skills, while they are able to attract much FDI. 

On the other hand, a relevant set of less economically advanced regions shows a low amount of FDI but tends to have a high level of green and green-enabling skills. 

In the case of digital occupations, there is a different correlation. Many economically advanced EU regions tend to have high levels of both digital skills and FDI. 

Whereas in the case of less economically advanced regions, a low level of both digital skills and FDI is present. 

In the case of twin occupations (those that combine green and digital competences), the relationship is similar to the one observed for the case of green occupations. A relevant set of advanced NUTS-2 regions in Europe score low in the endowment of twin and twin-enabling skills, while they attract much FDI. 

In the case of exports (even if due to data limitations, the report focuses only on Italian regions), the economically advanced regions are the ones with the highest export performance and endowment of digital skills.

From the econometric analysis controlling for different regional characteristics like population, GDP, education, and innovation, the report shows that there is a positive relation between the endowment of enabling green, enabling digital, and enabling twin skills. Instead, there is no relation between a higher endowment of digital and twin skills and FDI. 

Surprisingly, a negative effect is present in the case of green skills. 

Through this report, policymakers could better target places with complementarities between green/digital/twin competencies and a high participation in globalisation dynamics, which could serve as hubs for the twin transition. Moreover, policymakers could also identify European regions falling behind in this transition that are unattractive to international investors or markets, thus needing policy support.

Article prepared by Stefano Basilico, Gran Sasso Science Institute