Global value chains and service liberalization: do they matter for skill-upgrading?

Abstract

This study attempts to assess the effect of Global Value Chains (GVCs) and service liberalization on skill-upgrading. It provides a bridge between two active literatures on GVCs and service liberalization. Using comprehensive firm-level data from the World Bank Enterprise Survey, the contribution of this paper is twofold. First, it focuses on the effect of GVC integration on skill-upgrading in the presence of service restrictions. Second, it uses firm-level data on 141 developing economies. Our main findings suggest that integration in GVC results in skill-upgrading whilst service trade restrictions are associated with skill-downgrading. We argue that more restricted services weaken the channels by which GVC stimulates the process of skill-upgrading. Therefore, skill-upgrading resulting from GVC participation is more pronounced when services are liberalized. Our results remain robust to any change in the measure of service protection, the measure of skill-upgrading and when we control for the endogeneity of GVCs.

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