Economic upgrading through global value chain participation: which policies increase the value-added gains?

Abstract

The emergence of global value chains has opened up new ways to achieve development and industrialization. However, new evidence shows that not all countries have gained from participating in global value chains, and that country-specific characteristics matter for economic upgrading in global value chains. Using a panel data set of developing and industrialized countries at the sectoral level, this chapter first finds that global value chain participation as a buyer and especially as a seller increases domestic value added. Second, the chapter examines whether policy can amplify economic upgrading through global value chain integration. It finds that all assessed policy areas – targeting investment and trade flows, the business climate and institutions, as well as the quality and conditions of inputs and output – consistently magnify the effects of global value chains on domestic value added – in particular, through integration as a seller.

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