Embedding in Global Value Chains and Gain from Trade: An Empirical Study on China

Abstract

During the past 40 years of reform and opening up, China has actively integrated into the international division of the labor system, the domestic production capacity has been greatly improved, and hence it has been called the World Factory”. However, in the process of embedding into GVCs, driven by foreign-invested enterprises and processing trade, the mode of relying on cheap labor to engage in the labor-intensive production stage resulted in China’s manufacturing industry still facing the awkward situation in which trade scale and trade interests do not match. Therefore, how to get rid of the adverse situation of low-end lock”, realize the promotion of trade profitability, and embark on the road of high-quality development on the condition of fully integrating into GVCs, has become an urgent problem to be solved in the face of China’s manufacturing industry.Taking the domestic value added of export as the measure of trade interests and based on depicting the route of China’s manufacturing integration into GVCs, this paper empirically examines the differential influence of GVCs’ forward participation and backward participation on China’s trade interests, and identifies the influence mechanism of the above two paths on trade interests. The results show that: (1) The specialization” effect based on forward linkages and the learning by doing” effect based on backward linkages are the two main channels for embedding in GVCs to promote the growth of trade interests; (2) Embedding into GVCs has significantly enhanced China’s trade interests, and backward participation is the main way for China to integrate GVCs and gain trade interests; (3) Foreign-invested enterprises have played a double-edged sword” role in this process by expanding the scale of trade while inhibiting the profitability from trade at the same time; (4) The specialization” effect caused by forward linkages with low-income countries and the learning by doing” effect caused by backward linkages with middle-income countries have a significantly positive impact on China’s trade interests, while the impact of the learning by doing” effect caused by backward linkages with high-income countries on China’s trade interests is not significant; (5) Improving the importance of low- and middle-income countries in China’s GVCs’ network is conducive to enhancing China’s gain from trade. This paper concludes the countermeasures to enhance trade interests, including reducing trade and investment barriers, strengthening industrial linkages with the countries along the Belt and Road”, and enhancing the ability to undertake the high-tech production stage.On the basis of the existing research, the marginal contribution of the article lies in three aspects: First, by using the theoretical model, this paper analyzes the influencing mechanism of participating in GVCs on a country’s trade interests from the perspective of forward linkages and backward linkages respectively. Second, in the framework of trade in value added, this paper uses the new index to make a comprehensive portrait of the route of Chinese manufacturing industry integrating into GVCs. Third, this paper makes an empirical analysis of the differential influence of the different paths of participation in GVCs on China’s trade interests, and examines the impact of the specialization” effect and the learning by doing” effect on China’s trade interests in the process of China’s participation in GVCs.