Do host-country labor standards constrain home-country GVC position upgrading? Evidence on productivity and automation channels

Rising labor standards in host countries pose growing challenges to countries seeking to upgrade their GVC positions. Using an extended gravity model and bilateral panel data covering 50 countries over the period 2007–2020, we examine the impact of host-country labor standards on home-country GVC position upgrading. The results show that labor standards have gradually risen worldwide, yet substantial cross-country heterogeneity persists, with European countries and advanced economies maintaining relatively higher labor standards. Host-country labor standards significantly constrain home-country GVC position upgrading in this context. Mechanism analysis indicates that higher host-country labor standards hinder home-country GVC position upgrading by suppressing total factor productivity and reducing industrial robot installations, thereby limiting firms’ production efficiency and technological transformation. Moreover, higher human capital levels in host countries amplify the negative impact of labor standards, whereas greater human capital accumulation in home countries mitigates this adverse effect. Further heterogeneity analysis reveals that the impact of host-country labor standards depends critically on the population size of both home and host countries, EU membership status, and their respective stages of economic development. These findings have important policy implications for countries seeking to cope with rising labor standards in host countries while achieving sustained upgrading in their GVC positions.