Abstract
This study investigates the impact of participation in global value chains (GVCs) on sectoral value-added and total factor productivity growth (TFP) for two different time periods of 1995–2011 and 2005–2015. In addition to the commonly used participation indices, we also calculate lesser known measures of backward and forward participation indices, as suggested by the OECD. Our Generalized Method of Moments (GMM) estimations for the full sample indicate that sectors with higher GVC participation experience much higher output and TFP growth, especially for the period 1995–2011. Overall, our results imply that there have been decreasing gains from GVC participation in the later period. Note that our estimates for both output and TFP growth are very much similar. This means that participation in GVCs promotes not only output growth but also productivity growth across sectors. Considering the parameter heterogeneity, we repeat our estimations for manufacturing and services separately. Although for the earlier period both the manufacturing and services sectors benefit from more participation in terms of higher output and productivity growth, only the manufacturing sector experiences higher productivity growth from more participation for the period 2005–2015. Relatively less significant and smaller estimates for the later period covering the latest global crisis imply that participation in GVCs fails to bring satisfactory gains to countries and sectors.
Highlights
Global value chains (GVCs) are among the core realities of the contemporary global economy
In order to deal with instrument proliferation, we retain the number of instruments close to the number of country-sectors in our panel by limiting the lags used in the “gmmstyle” option
This study investigates the impact of sectoral participation in GVCs calculated by two different methods on sectoral value-added growth and total factor productivity (TFP) growth
Summary
Global value chains (GVCs) are among the core realities of the contemporary global economy. Higher volatility in demand faced by intermediate suppliers leads them to raise their inventories to cope with this uncertainty [7] Both Rodrik [8] and Fagerberg et al [9] criticize the contribution of participation in value chains on output and productivity growth. Whether the participation in GVCs really brings growth and total factor productivity (TFP) gains for countries or sectors is an important empirical question This question is worth studying, especially after the substantial slowdown in value chains after the 2008 crisis. We believe that it is important to employ both types of participation measures for the descriptive purposes and for the empirical purposes Another innovation of this study is to examine the impact of sectoral participation on output and total factor productivity growth by combining datasets from EU KLEMS and two versions of OECD TiVA.
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