The impact of Global Value Chains participation on countries' productivity

Participation in Global Value Chains (GVC) is widely considered a potential driver for productivity growth due to the advantages gained by the firms through technology transfers, vertical specialization, and access to new markets. However, in the last years, a series of consecutive shocks have led to a reduction in the volume of global trade and this trend is likely to have long-term consequences. Relying on the latest available data, we empirically investigate the relationship between labour productivity and GVC inclusion to assess the potential impact of the global trade slowdown on countries' productivity. The analysis is performed using an augmented production function framework applied to a sample of 76 countries over the period 1995-2019. Our findings add new insights into the ongoing debate on the uneven distribution of GVC participation advantages across different trade partners depending on their development stage. On average, developed countries benefit from a larger production efficiency from both upstream and downstream connections. On the other hand, in developing countries, the influence of the major economies seems to have harmful effects on productivity through forward participation, as domestic production is influenced by foreign demand for low-cost inputs, which can make developing economies stuck in low-value-added activities.