Abstract
This study delves into the effects of outward foreign direct investment (FDI) on global value chain (GVC) participation from 2000 to 2014. The utilization of traditional panel models, the spatial Durbin model (SDM), and the threshold model provides a comprehensive understanding of the heterogeneous spillover effects of outward FDI. The results show that increased outward FDI not only facilitates the GVC participation of parent countries but also has a profound impact on that of other countries. The spillover effects of outward FDI play a vital role in the GVC participation of low total factor productivity (TFP) countries. However, for developed countries with high TFP levels, outward FDI has positive impacts on deep GVC participation while not influencing shallow participation. These findings serve as an extension to the relevant theories and suggest a way for developing countries to capture gains from outward FDI and participate further in GVCs.
Highlights
Where i and t indicate the country and year, respectively, lnGVC is the logarithm of the overall global value chain (GVC) participation, which consists of two parts, shallow participation and deep participation; lnOFDI denotes the logarithm of outward FDI; X represents a series of control variables, including imports and exports of intermediate goods, foreign direct investment (FDI), the labor force, the capital density, human resources, research and development (R&D) expenditure, infrastructure level, and the Theil index; μ and δ are the country dummy and year dummy, respectively; and ε is the error term
In 2000, the GVC participation was mainly dominated by developed countries, as more than 45% of the total value added for GVC participation was generated by countries such as the US (15.39%, proportion of the total hereinafter), Germany (7.46%), Japan (7.57%), the UK (5.65%), France (4.43%), Canada (4.02%), and so on, while the proportion of developing countries, like China, Russia, and Brazil, was relatively small
Regarding the results for the other control variables, the coefficients of lnEINT, lnEMP, lnR&D, Infras, and total factor productivity (TFP) are significantly positive under most circumstances, denoting that an increase in intermediate goods exports, employment, R&D expenditure, infrastructure level, and TFP contributes to GVC participation
Summary
This section reviews the relevant studies on both outward FDI and GVC participation and puts forward three hypotheses according to the existing literature and theories. The spillovers of outward FDI could play a positive role in a third country through the intermediate inputs exported by the foreign affiliates, in which case outward FDI may have effects on the GVC participation of the other countries. In many developed countries, like the United Kingdom, Korea, and the US, vertical outward FDI prevails, which follows a pattern in accordance with the comparative advantage (Maskus and Allan Webster 1995; Yeaple 2003) These distinctions in outward FDI may result in different effects on GVC participation. The relevant literature generally has not considered the spatial dependence, namely the correlation of GVC participation among neighboring countries This omission motivates our study to utilize spatial econometric techniques to investigate the spillover effects of outward FDI on GVC participation. The consideration of the parent and other countries, together with developing and developed countries, allows for a more comprehensive view of the effects that outward FDI has on GVC participation
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