Abstract
Unlike GVC participation, the methodology for GVC upgrading lacks a unified consensus. We categorize upgrading into three distinct types: functional, structural, and technological. Our empirical focus primarily lies on structural upgrading. We use the “flying geese” model as a reference to sequentially explain structural shifts that also influence the patterns of forward and backward participation. Our analysis reveals that the proportion of domestic value added (DVA) in exports, which is a benchmark for structural upgrading, has seen a downturn in certain regions. Nevertheless, the adverse effects on the share of DVA addition to exports are outweighed by the benefits of broader export expansion. The results of our econometric analysis can be summarized as follows. First, even after accounting for the three-dimensional fixed effects and traditional factors of GVC participation, two variables remain significant: domestic industrial capacity and the presence of an educated workforce. Second, an educated labor pool not only enhances the volume but also the share of DVA in exports. Lastly, the significance of an educated workforce becomes even more pronounced when structural upgrading is evaluated, especially concerning the share of DVA in exports within both the manufacturing and service sectors.
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Notes
- 1.
Alternatively, upgrading can be achieved by exploiting forward linkages and stimulating the development of the downstream industry (e.g., the petrochemical industry would be stimulated by the growth of the petroleum industry). In this case, upgrading is achieved by extending the domestic segment of the value chains downstream.
- 2.
The operational clusters are based on agglomeration externalities (particularly economies of proximity in input–output relations), such as reduced transport time between stages in value chains and lower transport and inventory costs (McKendrick et al. 2000).
- 3.
“Technological clusters” are based on agglomeration externalities, but they are characterized by the spillover of knowledge and information that is critical to innovation and technological advancement (McKendrick et al. 2000).
- 4.
Ito (2020) conducted a similar analysis using updated data. She found that although those countries could increase both their GVC participation and DVA shares simultaneously until 2010, their GVC participation share began to decline with the rise of their DVA share after this point. As shown in Fig. 3, there is a negative relation between GVC participation and DVA shares, and a simultaneous increase in these two measures may not be feasible in the long run.
- 5.
Capital goods, which include machinery and equipment, are also imported from developed countries. However, they are not considered here, because only intermediate goods and services are used to define GVC trade.
- 6.
In recent years, risks of supply chain disruptions have attracted the attention of policy makers worldwide. For example, these risks, caused by unpredictable events, such as international conflicts or natural disasters, could be mitigated by domestic procurement. In particular, since US-China relations have deteriorated in recent years, the risk of offshoring has been emphasized, and the impact of the COVID-19 pandemic has accelerated this trend. In fact, the US, China, and other relevant countries in Europe and Japan are trying to establish their own supply chains of strategically important commodities, such as rare-earth minerals, semiconductors, and medical products. If this trend continues, the share of domestic procurement of inputs will increase in certain sectors.
- 7.
Unlike firms in Korea, where national brands such as Samsung and LG are taking the lead, many Taiwanese firms chose to remain suppliers to avoid competition with customers and continue to exchange in-depth information.
- 8.
Regarding technological capabilities, Ito (2020) revealed that the number of patents in Korea, Taiwan, and China, which are registered at the US Patent and Trademark Office (USPTO), is rapidly approaching those in the US, Japan, and Germany. In contrast, the number of patents in Southeast Asia, East Europe, and Mexico, all heavily dependent on FDI, still lags far behind those of developed countries.
- 9.
Generally, the larger the country, the higher the DVA share, because a great variety of inputs are produced within the country. Similarly, the natural resource endowment will positively affect the DVA share. In contrast, the geographical proximity to industrialized countries, which provide intermediate inputs at lower cost, will negatively affect the DVA share.
- 10.
DVA in exports is the domestic value added embodied in the country’s own exports. On the other hand, DVA generated by exports is the value generated by not only the country’s own exports but also all other countries’ exports. Hence, it indicates from which country’s exports the value added originates.
- 11.
- 12.
- 13.
The descriptive statistics for the variables in the baseline specification have already been reported in Table 7 of Chapter 2.
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Kuroiwa, I., Umezaki, S. (2024). Upgrading in GVCs. In: Global Value Chains and Industrial Development. SpringerBriefs in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-97-0021-9_3
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