The Impact of Global Value Chain Participation on Sectoral Growth and Productivity

Abstract

This study investigates the impact of participation in global value chains (GVCs) on sectoral value-added and total factor productivity growth (TFP) for two different time periods of 1995-2011 and 2005-2015. In addition to the commonly used participation indices, we also calculate lesser known measures of backward and forward participation indices, as suggested by the OECD. Our Generalized Method of Moments (GMM) estimations for the full sample indicate that sectors with higher GVC participation experience much higher output and TFP growth, especially for the period 1995-2011. Overall, our results imply that there have been decreasing gains from GVC participation in the later period. Note that our estimates for both output and TFP growth are very much similar. This means that participation in GVCs promotes not only output growth but also productivity growth across sectors. Considering the parameter heterogeneity, we repeat our estimations for manufacturing and services separately. Although for the earlier period both the manufacturing and services sectors benefit from more participation in terms of higher output and productivity growth, only the manufacturing sector experiences higher productivity growth from more participation for the period 2005-2015. Relatively less significant and smaller estimates for the later period covering the latest global crisis imply that participation in GVCs fails to bring satisfactory gains to countries and sectors.