Does participation in global value chains increase productivity? an analysis of trade in value added data#

This paper examines the impact of global value chain (GVC) participation in productivity by considering both backward and forward participation. Conducting a panel estimation covering 47 countries and 13 manufacturing sectors for the period of 1995 to 2011, we found that both backward and forward GVC participation contribute to an increase in the productivity of the countries involved in GVCs. In particular, benefits in the form of improved productivity are larger in cases where developing countries procure intermediate goods from developed countries, or backward participation. Our analysis indicates the importance of GVC participation for improving productivity. We argue that, in order for a country to increase GVC participation, an open, free, and transparent trade and foreign direct investment environment (which is provided by regional trade agreements); well-developed soft infrastructure (e.g. educational and legal systems); hard infrastructure (e.g.Transportation and communication systems); and the availability of capable human resources are important.