Does the Complexity of GVC Participation Matter for Productivity and Output Growth?

Abstract

This paper investigates the determinants of total factor productivity and income growth by taking into account both the position of the industry in the global value chain and the complexity of participation for the period of 1996–2009 for 40 developed and developing countries. Our estimation results clearly show that while all measures of forward GVC participations raise the total factor productivity growth of manufacturing industries, there is no effect of participation into GVCs on the productivity of services sectors. Almost all measures of backward and forward GVC substantially promote the output growth of manufacturing and services industries. These significant results provide strong evidence for the learning by trading hypothesis and indicate the importance of deeper involvement into GVCs for higher sectoral productivity. Substantial evidence for the positive impact of importing and exporting intermediates, participating in GVCs, on sectoral performance imply that the successes of industries highly depend on their efficient integration in the global production process.

Résumé

Cet article étudie les déterminants de la productivité totale des facteurs et de la croissance des revenus en prenant en compte à la fois le positionnement de l'industrie dans la chaîne de valeur mondiale (CVM) et la complexité de la participation pour la période 1996-2009, dans 40 pays développés et en développement. Selon nos résultats, nous voyons clairement que toutes les mesures de participation en aval aux CVM augmentent la croissance de la productivité totale des facteurs des industries manufacturières, mais qu’il n'y a aucun effet lié à la participation aux CVM sur la productivité du secteur des services. Presque toutes les mesures de la participation aux CVM, que ce soit en amont ou en aval, favorisent considérablement l’augmentation de la production pour les industries manufacturières et des services. Ces résultats significatifs fournissent des preuves solides en faveur de l'hypothèse selon laquelle c’est en faisant du commerce que l’on s’améliore dans ce domaine et montrent l'importance d'une implication plus conséquente dans les CVM pour une productivité sectorielle plus élevée. Au vu des preuves importantes qui existent concernant l'impact positif sur la performance sectorielle de l'importation et de l'exportation de produits intermédiaires, et de la participation aux CVM, cela suggère que le succès des industries dépend fortement de leur intégration efficace dans le processus de production à l’échelle mondiale.

Appendix

The Length of GVC Based on Forward Linkages

Distance to final use, that is so called upstreamness index, is proposed by Fally (2012). The index is defined as the row sum of the Ghosh inverse matrix (Antrás et al., 2012; Johnson, 2018). It means forward linkages and measures the number of stages before the goods or services are attained by the final consumers. Wang et al. (2016) propose decomposition of forward linkages utilized by the seller perspective. The important point is the fact that the total index based on forward industrial linkages is mathematically identical to the upstreamness index represented by Fally (2012) and Antrás et al. (2012). To reiterate, the novel part of this index is decomposition of production activities into a variety of segments.

The Calculation of Length of GVC Based on Forward Linkages

The distance to final demand is computed in the following way:

$$PLv = {\text{colsum}}\left( {\widehat{{V_{c} }}LL\hat{Y}} \right)/{\text{colsum}}\left( {\widehat{{V_{c} }}L\hat{Y}} \right)$$

where $PLv$ represents the number of forward production stages, $\widehat{{V_{c} }}$ is diagonal matrix of value added over output ratio of sectors. $L$ is Leontief inverse matrix, $\hat{Y}$ is diagonal matrix of final products. $PLv$ is the ratio of domestic sales, traditional trade, and GVC related domestic value added to output of sectors. Further calculations and derivations of these formulations can be found in Wang et al. (2016).

The Length of GVC Based on Backward Linkages

Length of GVC are introduced and calculated as an index for the number of production stages by Antrás and Chor (2013). The index takes the value of 1 if there is single production stage, otherwise takes the value higher than 1 depending on how many stages are passed or how many inputs are used regardless of domestic or foreign. It is defined as the column sum of Leontief inverse matrix (Johnson, 2018). Wang et al. (2016) propose an advanced accounting framework, which decomposes the backward linkages utilized by the user perspective.

The Calculation of Length of GVC Based on Backward Linkages

$$X = AX + Y$$

where $X$ is gross output, $Y$ is final products and $A$ is the input coefficient matrix calculated dividing each entries of intermediate input matrix by output of sectors.

$$X = \left( {I - A} \right)^{ - 1} Y$$

where $\left( {I - A} \right)^{ - 1}$ is defined as Leontief Inverse Matrix.

In input–output matrix form, the length of GVC, that is number of production stages, is computed according to this formula:

$$PLy = {\text{rowsum}}\left( {\widehat{{V_{c} }}LL\hat{Y}} \right)/{\text{rowsum}}\left( {\widehat{{V_{c} }}L\hat{Y}} \right)$$

where $PLy$ represents the number of backward production stages, $\widehat{{V_{c} }}$ is diagonal matrix of value added over output ratio of sectors. $L$ is Leontief inverse matrix, $\hat{Y}$ is diagonal matrix of final products. $PLy$ is the ratio of foreign buying, traditional trade, and GVC related foreign value added to output of sectors (Tables 4 and 5).

Table 4 Sectors

Table 5 Backward and forward lengths & GVC participation ratios