Global value chains participation and economic upgrading: Evidence from developing countries

Global Value Chains (GVC) have immensely increased during the last years, particularly in developing countries which are increasingly engaged in international production networks. Therefore, the objective of the paper is to explore the effect of GVC participation on firms' productivity and products' diversification in developing countries. In order to study this relationship between GVC and economic upgrading, a micro-level analysis is performed based on recent firm-level data from the World Bank Enterprise Surveys (WBES), by analysing a dataset of firms active in several developing countries. Controlling for fixed effects, the results suggest that firms' involvement in GVC has a significant positive effect on productivity. Firms that participate in GVC not only perform better, showing additional productivity gains, but also introduce new products. Nevertheless, sectoral evidence shows that this effect varies across industries, with a particularly negative effect of the interaction term in the textile and garment sector. Furthermore, the paper provides evidence that the positive effect of GVC is more pronounced for initially highly skilled firms.