Abstract

What kind of trade agreements should a country choose? Regional trade agreements, multilateral trade agreements, or both? What's the role of a country's outward foreign direct investment (OFDI) and foreign direct investment (FDI) in its participation and position in global value chains (GVCs)? Is a country's research and development spending conducive to breaking the "low-end locking" of FDI? Based on the World Input-Output Tables (WIOTs) released in 2016, this paper computes the indicators of GVC participation and position and identifies the feature of the production division, providing a reference for promoting regional and multilateral trade agreements. This paper uses feasible generalized least squares (FGLS) and system generalized method of moments (SYS-GMM) to examine the impact of a country's outward and inward FDI on its GVC participation and position. The empirical results imply that a country's OFDI promotes its GVC participation and fosters its upgrading within industries in GVCs, while FDI inhibits the upgrading of GVCs, though it promotes a country's GVC participation. In addition, a country's research and development spending can be conducive to breaking the "low-end locking" effect of FDI.Keywords: Outward Foreign Direct Investment, Inward Foreign Direct Investment, Global Value Chains, World Input-Output Tables, Feasible Generalized Least SquaresJEL Classifications: C33, F21DOI: https://doi.org/10.32479/ijefi.11950

Highlights

  • Global value chains (GVCs) are a powerful driver of productivity growth, job creation, and increased living standards

  • It should be noted that, compared with other countries, the United States has witnessed a sharp increase in the GVC position index in 2014, making it stand at the top in the rankings in 2014

  • It should be noted that Belgium, United Kingdom, Germany, France, Netherlands, China, Japan, Germany, and the United States have had an increasing global share of foreign added value, which means that the value chains of these countries are globally fragmenting. This trend indicates that the shares of some countries such as Belgium, China, Japan, and Germany are increasing in two ways, at both regional and global level, suggesting that it can be more complicated for these countries to decide whether to promote regional or multilateral trade agreements so as to increase their welfare

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Summary

INTRODUCTION

Global value chains (GVCs) are a powerful driver of productivity growth, job creation, and increased living standards. Given the booming of integrated production systems spanning several countries and the application of advanced technology and sophisticated skills in international production, it is important for countries to conduct OFDI and attract high quality FDI, which contributes to the optimal allocation of production factors in global markets and the upgrading of GVCs. In fostering the upgrading of global value chains, FDI plays a positive role, while it can play a negative role due to its “low-end locking” effect. This paper examines the effect of OFDI on global value chains and sheds

LITERATURE REVIEW
DATA AND METHODOLOGY
Research Model
RESULTS AND DISCUSSION
CONCLUSION

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