Does global value chains participation really promote skill-biased technological change? Theory and evidence from China

The positive effect of global value chains (GVCs) integration on skill-biased technological change (SBTC) in developed countries has been proved extensively, yet little is known about that effect in developing countries, almost all of which are integrated into the low end of GVCs dominated by developed countries (universally located in the middle or at the high end of GVCs). Thus, research on the case of China, the world's largest developing country, can provide a novel insight into the general effect. In this study, we first develop a dynamic general equilibrium model with GVCs low-end integration and SBTC, through which we find that the mechanism whereby GVCs low-end integration works against SBTC in developing countries lies in too much skilled labour being absorbed by low-skill industries due to low-skill-biased technology diffusion, which causes insufficient skilled labour for high-skill industries. After that, the model is estimated using China's provincial panel data over the period from 1997 to 2015, and the empirical results show the negative impact of GVCs low-end integration on SBTC. The findings indicate that the GVCs position should not be overlooked in analysing the impact of GVCs integration on SBTC and that an improvement of the GVCs position is crucial for SBTC in developing countries.