Global Value Chains and Economic Upgrading in Developing Countries

Abstract

The emergence of global value chains (GVCS) has allowed countries to
specialise in the production of specific inputs (intermediate goods and
final goods), which has a direct implication for productivity. This paper
explores the impact of GVCSon the economic upgrading of developing
economies. Specifically, our analysis relates to the effect of foreign value
added in gross exports (GVCS) on domestic value-added content of gross
exports (economic upgrading), which includes the added value that emanates
from all the industries of the exporting country to their trading
partners. The sample covers 50 countries (22 developing and 28 advanced
countries) over the period 2005–2015.We employ both a pooled ols and
a system GMM method. We contribute to the literature by differentiating
between trade flows from developing economies (South-South) and developed
economies (South-North). The results indicate a positive effect
between gvcs participation and economic upgrading, with the effect being
stronger in the case of South-North integration. Further, the results
support the view that infrastructure development can play a key role in
supporting the economic development of developing economies. gdp per
capita, innovation, and institutional quality can all promote economic upgrading
even though their effects vary across trade flows.