Global value chains and structural transformation: Evidence from the developing world

Abstract

Multiple studies on economic transition have argued that participation in Global Value Chains (GVCs) can facilitate the process of structural transformation in developing economies by reallocating labor from less productive to more productive sectors. However, there is a dearth of empirical work investigating the claim. We analyze forty countries from the regions of Asia, Africa, and Latin America over the period 1993–2015 to explore the relationship between GVC participation and structural transformation in developing economies. We do not find any significant association between participation in GVCs and structural transformation, as measured by the reallocation of labor towards sectors with higher productivity levels. Rather, we find some evidence that participation in GVCs might be associated with the increasing concentration of labor in sectors experiencing declining productivity growth and /or falling employment in sectors witnessing positive productivity growth, thus contributing towards hindering the process of successful structural transformation in developing economies.