Job Market Paper: Does Participating in Global Value Chains Lead to Export Quality Upgrading?

Abstract

In this paper, I examine the causal effect of GVC participation on export quality upgrading, explore the heterogeneous impact among countries and industries, and construct a country-industry upstreamness measure to examine the various effects along the positions of the value chains. I find consistent evidence that increasing GVC participation has a positive and statistically significant effect on export quality. An increase in domestic value-added embodied in foreign exports as a share of domestic gross exports (forward GVC participation) has a pronounced and robust effect on export quality upgrading. However, the effect of foreign value-added in an industry’s exports as a share of gross exports (backward GVC participation) is largely muted. The impact of increasing forward GVC participation on export quality is positive and significant among both advanced and developing countries, countries which have transitioned to a higher income status, and East Asia and Pacific countries. In terms of sectoral heterogeneities, three patterns can be observed. First, the impact is predominantly driven by manufacturing sectors. Second, increasing GVC participation in sectors with lower research and development (R&D) intensities is associated with a decrease in sectoral export quality. Third, an increasing share of sectoral differentiated products is a positive and significant contributor of export quality upgrading. Lastly, by analyzing the positions of the value chains, I find that country-industry pairs in extremely upstream positions can improve export quality by increasing backward GVC participation, while those that are closer to final uses can benefit from strengthening forward GVC participation.