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Global Value Chains: Benefiting the Domestic Economy?

Global Value Chains (GVCs) have become a central topic in trade and development policy but little is known about their actual impact on economic performance because data availability has been limited. Using a new unique set of Inter- Country Input-Output tables with extensive country coverage, I look at the relationship between GVC participation and domestic value added at the industry-level to determine if and for whom GVCs are beneficial. I show that GVC participation is positively related to domestic value added along the value chain. However, this effect is only significant for middle- and high-income countries. Deriving novel source/destination country-specific indicators, I present evidence on theoretical transmission channels between GVCs and domestic value added that explain these results. More specifically, I find support for productivity enhancing effects through cost savings when richer countries source from low-wage countries. In contrast, low- and middle-income countries only benefit from technology upgrading and spillovers if they have sufficient levels of absorptive capacity.

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Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 02-2015.

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Length: 54
Date of creation: 19 Mar 2015
Handle: RePEc:gii:giihei:heidwp02-2015
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