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The turning point of domestic value creation in exports based on the knowledge-capital model

Author

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  • Oyamada, Kazuhiko
  • Taguchi, Hiroyuki

Abstract

This paper explores how the empirical turning point of regaining domestic value-added embedded in exports corresponds to the theoretical transformation in types of foreign direct investment that host emerging market economies invite. Utilizing panel data from of 72 middle-income countries from 1990 to 2018, compiled from the latest UNCTAD–Eora Global Value Chain Database, non-linear U-shaped curves (alternative smile curves) in the relationships between the domestic value-added share to exports and GDP per capita, derived from an extended version of the knowledge-capital model, were empirically estimated and tested for statistical significance. The results show that manufacturing-based middle-income economies have a meaningful U-shaped curve, with the turning point at approximately $2,000 US GDP per capita. Subsequently, we further examined geographical characteristics and found that the Asian and Latin American middle-income economies have their own curves with different turning points.

Suggested Citation

  • Oyamada, Kazuhiko & Taguchi, Hiroyuki, 2020. "The turning point of domestic value creation in exports based on the knowledge-capital model," IDE Discussion Papers 805, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    • Handle: RePEc:jet:dpaper:dpaper805
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    More about this item

    Keywords

    knowledge-capital model; global value chains; alternative smile curve; Economy;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business

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