Trade, Global Value Chains and Upgrading: What, When and How?

This paper explains how successful innovation systems interact with trade and global value chains (GVC) participation to foster learning and technological upgrading. It conducts an empirical investigation of 74 developing countries for 3 years, 2000, 2005 and 2010, to show that, while some countries manage to trade and export across a large number of technological export categories, many remain embedded in the export of low technology goods with little movement technologically. The analysis looks at why this is the case and what factors account for how firms are able to leverage trade to learn and upgrade in some instances, but not all. The results show that the ability to technologically diversify across export categories is linked to stronger innovation systems, as measured by national capability indicators, such as public R&D investments, scientific publications, intellectual property payments and patents by residents. The results also confirm the rise of several outperforming countries, the emerging economies. We conclude that, in successful, outperforming countries, firms rely on several attributes of the innovation system to leverage knowledge flows within and outside of GVCs to build export capacity and diversify horizontally into new GVCs.