IDEAS home Printed from https://ideas.repec.org/p/gii/giihei/heidwp02-2015.html
   My bibliography  Save this paper

Global Value Chains: Benefiting the Domestic Economy?

Author

Abstract

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.

Suggested Citation

  • Victor Kummritz, 2015. "Global Value Chains: Benefiting the Domestic Economy?," IHEID Working Papers 02-2015, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heidwp02-2015
    as

    Download full text from publisher

    File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIDWP02-2015.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Egger, Hartmut & Falkinger, Josef, 2003. "The distributional effects of international outsourcing in a 2 x 2 production model," The North American Journal of Economics and Finance, Elsevier, vol. 14(2), pages 189-206, August.
    2. Kaplinsky, Raphael & Farooki, Masuma, 2010. "What are the implications for global value chains when the market shifts from the north to the south ?," Policy Research Working Paper Series 5205, The World Bank.
    3. Bastiaan Quast & Victor Kummritz, 2015. "Decompr: Global Value Chain Decomposition In R," CTEI Working Papers series 01-2015, Centre for Trade and Economic Integration, The Graduate Institute.
    4. Robert Koopman & Zhi Wang & Shang-Jin Wei, 2014. "Tracing Value-Added and Double Counting in Gross Exports," American Economic Review, American Economic Association, pages 459-494.
    5. Baldwin, Richard & Venables, Anthony J., 2013. "Spiders and snakes: Offshoring and agglomeration in the global economy," Journal of International Economics, Elsevier, pages 245-254.
    6. Beata S. Javorcik & Mariana Spatareanu, 2009. "Tough Love: Do Czech Suppliers Learn from their Relationships with Multinationals?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(4), pages 811-833, December.
    7. Richard Baldwin & Javier Lopez-Gonzalez, 2015. "Supply-chain Trade: A Portrait of Global Patterns and Several Testable Hypotheses," The World Economy, Wiley Blackwell, pages 1682-1721.
    8. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, pages 52-102.
    9. Morris M. Kleiner & Alan B. Krueger, 2013. "Analyzing the Extent and Influence of Occupational Licensing on the Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 31(S1), pages 173-202.
    10. Marcel P. Timmer & Bart Los & Robert Stehrer & Gaaitzen J. Vries, 2013. "Fragmentation, incomes and jobs: an analysis of European competitiveness," Economic Policy, CEPR;CES;MSH, vol. 28(76), pages 613-661, October.
    11. Arnaud Costinot & Jonathan Vogel & Su Wang, 2013. "An Elementary Theory of Global Supply Chains," Review of Economic Studies, Oxford University Press, vol. 80(1), pages 109-144.
    12. de Sousa, José, 2012. "The currency union effect on trade is decreasing over time," Economics Letters, Elsevier, vol. 117(3), pages 917-920.
    13. Dodzin, Sergei & Vamvakidis, Athanasios, 2004. "Trade and industrialization in developing economies," Journal of Development Economics, Elsevier, pages 319-328.
    14. Sebastian Benz & Mario Larch & Markus Zimmer, 2015. "Trade in ideas: outsourcing and knowledge spillovers," International Economics and Economic Policy, Springer, pages 221-237.
    15. Daria Taglioni & Deborah Winkler, 2016. "Making Global Value Chains Work for Development," World Bank Publications, The World Bank, number 24426.
    16. Baldwin, Richard & Robert-Nicoud, Frédéric, 2014. "Trade-in-goods and trade-in-tasks: An integrating framework," Journal of International Economics, Elsevier, pages 51-62.
    17. Guillaume Daudin & Christine Rifflart & Danielle Schweisguth, 2011. "Who produces for whom in the world economy?," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1403-1437, November.
    18. Baldwin, Richard & Venables, Anthony J., 2013. "Spiders and snakes: Offshoring and agglomeration in the global economy," Journal of International Economics, Elsevier, pages 245-254.
    19. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, pages 75-96.
    20. Colantone, Italo & Crinò, Rosario, 2014. "New imported inputs, new domestic products," Journal of International Economics, Elsevier, pages 147-165.
    21. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, pages 605-627.
    22. Milberg, William & Winkler, Deborah, 2010. "Trade crisis and recovery : restructuring of global value chains," Policy Research Working Paper Series 5294, The World Bank.
    23. David L. Hummels & Dana Rapoport & Kei-Mu Yi, 1998. "Vertical specialization and the changing nature of world trade," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 79-99.
    24. Barro, Robert J. & Lee, Jong Wha, 2013. "A new data set of educational attainment in the world, 1950–2010," Journal of Development Economics, Elsevier, pages 184-198.
    25. Marcel Timmer & Abdul A. Erumban & Reitze Gouma & Bart Los & Umed Temurshoev & Gaaitzen J. de Vries & I–aki Arto & Valeria Andreoni AurŽlien Genty & Frederik Neuwahl & JosŽ M. Rueda?Cantuche & Joseph , 2012. "The World Input-Output Database (WIOD): Contents, Sources and Methods," IIDE Discussion Papers 20120401, Institue for International and Development Economics.
    26. Wilhelm Kohler, 2004. "Aspects of International Fragmentation," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 793-816, November.
    27. Daria Taglioni & Deborah Winkler, 2016. "Making Global Value Chains Work for Development," World Bank Publications, The World Bank, number 24426.
    28. Koopman, Robert & Wang, Zhi & Wei, Shang-Jin, 2012. "Estimating domestic content in exports when processing trade is pervasive," Journal of Development Economics, Elsevier, pages 178-189.
    29. Pinelopi Koujianou Goldberg & Amit Kumar Khandelwal & Nina Pavcnik & Petia Topalova, 2010. "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India," The Quarterly Journal of Economics, Oxford University Press, vol. 125(4), pages 1727-1767.
    30. Keller, Wolfgang, 1996. "Absorptive capacity: On the creation and acquisition of technology in development," Journal of Development Economics, Elsevier, pages 199-227.
    31. Farole, Thomas & Winkler, Deborah, 2012. "Foreign firm characteristics, absorptive capacity and the institutional framework : the role of mediating factors for FDI spillovers in low- and middle-income countries," Policy Research Working Paper Series 6265, The World Bank.
    32. Sebastian Benz & Mario Larch & Markus Zimmer, 2015. "Trade in ideas: outsourcing and knowledge spillovers," International Economics and Economic Policy, Springer, pages 221-237.
    33. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, pages 1978-1997.
    34. Arndt, Sven W., 1997. "Globalization and the open economy," The North American Journal of Economics and Finance, Elsevier, vol. 8(1), pages 71-79.
    35. Gene M. Grossman & Esteban Rossi-Hansberg, 2008. "Trading Tasks: A Simple Theory of Offshoring," American Economic Review, American Economic Association, pages 1978-1997.
    36. Torfinn Harding & Beata S. Javorcik, 2012. "Foreign Direct Investment and Export Upgrading," The Review of Economics and Statistics, MIT Press, pages 964-980.
    37. Geske Dijkstra, A., 2000. "Trade Liberalization and Industrial Development in Latin America," World Development, Elsevier, vol. 28(9), pages 1567-1582, September.
    38. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, pages 224-236.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jan Fagerberg & Bengt-Åke Lundvall & Martin Srholec, 2017. "Global value chains, national innovation systems and economic development," Working Papers on Innovation Studies 20171012, Centre for Technology, Innovation and Culture, University of Oslo.
    2. Jan Fagerberg & Bengt-Åke Lundvall & Martin Srholec, 2017. "Global value chains, national innovation systems and economic development," Working Papers on Innovation Studies 20171012, Centre for Technology, Innovation and Culture, University of Oslo.
    3. repec:era:wpaper:dp-2015-50 is not listed on IDEAS
    4. Marta Solaz Alamá, 2016. "Cadenas globales de valor y generación de valor añadido: El caso de la economía española," Working Papers. Serie EC 2016-01, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

    More about this item

    Keywords

    Global Value Chains; International Trade; Economic Development;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gii:giihei:heidwp02-2015. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dorina Dobre). General contact details of provider: http://edirc.repec.org/data/ieheich.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.