| Summary: | This Selected Issues paper examines—through the lenses of a structural model of global value chains—policies that could smooth the transition to the production of electric vehicles in Czechia economy context. In particular, the paper analyzes the impacts of a broad set of policies related to increasing labor productivity, boosting production capabilities in the current set of specialties, and moving up the global value chain. Czechia automotive sector’s value-added share and skill intensity are comparatively lower in the regional context. IMF analysis investigates the potential impact of a transition to electric vehicles in Europe, through a combination of data and modeling techniques. The paper also introduces a stylized structural model of automotive global value chains that includes distinct production of electric and combustion vehicles. The model describes the inter-connectedness of trade and imbeds domestic capability features, including specialization along the global value chain. The model is also calibrated to capture key features of Czechia and Germany’s positions in global value chains, as well as key differences between electric and combustion vehicle production
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