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

Abstract

Since the 1990s, the world has seen a wave of increasing production fragmentation. In this paper, I examine the impact of GVC participation on export quality upgrading, illustrate the heterogeneous impact among countries and sectors, and study the role of domestic factors which improve export quality. Using the two-step system GMM estimator on a panel of 61 countries and 28 ISIC industries from 1995 to 2014, I find consistent empirical evidence that increasing GVC participation has a positive and statistically significant effect on export quality. Such effect is pronounced and robust across specifications for forward GVC linkages, while that of backward GVC linkages is muted. The impact of increasing forward GVC participation on export quality is positive and significant among the upper middle-income countries, among countries which have experienced an improvement in income status within the sample period, and among the subgroup of 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, sectors with lower research and development (R&D) intensities experience a decrease of export quality. Third, increasing the share of sector-level differentiated products is a significant factor of export quality upgrading. Regression results highlight the impact of GDP per capita, institutional quality, investment, FDI, and human capital on export quality upgrading. The effect of GDP per capita is consistent and robust across specifications and analyses. (Paper coming soon!)