Global Value Chains and Innovation Systems: Exploring the Inter-relations

Abstract

Advances in transportation sector have shrunk the world in a matter of few hours while the inventions in information and communication technologies is giving time a miss. These together have transformed the structure of world production process. The nations are increasingly concerned about entering the global value chains (GVC) and subsequently to upgrade into higher value-added activities, largely being determined by the structure of their innovation systems (IS). Therefore, an attempt is made to examine the relationship between participation in Global value chains (GVC) and Innovation Systems (IS) of different developed, Asian and developing countries depicting different stages of development. For the purpose, seemingly unrelated regression equation model is estimated for the manufacturing industries and it was found that in the initial stages of development, low-skilled labour, medium skilled labour, process innovation and price level have significant impact on participation in global value chains (GVC) followed by the role of skilled labour and innovations in the advanced stages of development. It was also found that for building innovation systems (IS), the role of high-skilled labour predominates in the initial stages. However, in the later stages, participation in GVC with backward linkages also has a positive impact on building their innovation value systems (IS). Specifically for South Korea with proximity in high technology intensive industries, the impact of high skilled labour, product and process innovation are significant in determining global value chain participation while the high-skilled labour and backward linkages played important role for building its innovation systems (IS). For India’s low-technology intensive industries, low skilled labour and price level have significant impact on its participation in global value chains whereas human capital have positive impact on its innovation systems (IS).