Asymmetric trade costs, domestic value chains and global value chains in China: mechanism and effect assessment

Abstract

Previous research mostly evaluates global value chain embeddedness at the country level rather than considering the expansions of global value chains at the regional level within a country, and pays little attention to the mechanism linking global value chains and domestic value chains. Therefore, a substantial part of the variation in global value chain embeddedness at the regional level remains unexplained. Using Chinese interregional input-output tables in 2002, 2007, 2010, and 2012, this study investigates the impact of the asymmetric trade cost on global value chain embeddedness in China, and the underlying interaction mechanisms between domestic value chains and global value chains. The findings show that the asymmetric trade cost may widen the gap in the degree of global value chain embeddedness between bilateral trade regions, which unveils the variation in global value chain embeddedness at the regional level from the perspective of the asymmetric trade cost. Furthermore, domestic value chains may promote global value chains through improving collaboration, reducing transaction costs, and enhancing industrial competitiveness. In closing, this study reveals that the exacerbating effect of asymmetric trade costs on the disparity in global value chain embeddedness among regions becomes more pronounced in the presence of a significant gap in domestic value chain integration.