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The Value-added Creation Effect of Global Value Chain Participation: Industry-level Evidence from APEC Member Economies APEC, Economic reform

Author Innwon Park and Soonchan Park Series 20-01 Language English Date 2020.12.04

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We analyze the value-added creation effect of GVC participation by applying a standard fixed effects regression model analysis with economy-wide country-industry data. We use OECD Inter-country Input-Output Tables covering 64 countries (21 APEC members and 43 non-APEC members) and 35 industries (1 Agriculture, forestry and fishing, 3 Mining, 16 Manufacturing, and 15 Service) between 2005 and 2015. We find that APEC member economies’ participation in GVC activities is not distinct from non-APEC member economies but the causal relationship between GVC participation and created domestic value-added is much stronger in APEC member economies. More specifically, from the qualitative evaluation on statistical data, we find that backward linkage has been stronger than forward linkage and both have been recently decreasing. The APEC industries’ upstream positions in production line have been slightly more distinguished than non-APEC industries. From the econometric regression analysis, we find that forward participation in GVCs is more desirable than backward participation in terms of creating domestic value-added. We also find that the industry position in middle stages of production line in contrast to earlier and later stages creates higher domestic value-added per output unit. This implies that the firm-specific conventional U-shaped “Smile Curve Hypothesis” is not applicable at the economy-wide country-industry level, especially in APEC member economies. This finding supports that manufacturing industries are still a major driving force for less developed APEC member economies to move up the development ladder. Considering that gains from GVC participation are diversified across industries and upgrading country-industry positions in GVCs is competitive among the interconnected countries, we strongly recommend for APEC member economies to construct effective domestic value chains and coordinate with other members during their process of upgrading GVC participation.

Executive Summary

Ⅰ. Introduction

Ⅱ. Measuring Industry Participation and Position in GVCs
2.1. Industry Participation in Vertical Specialization Linkage: Backward and Forward Participation Rates
2.2. Industry Position in Production Line: Upstreamness and Downstreamness Indices

Ⅲ. Industry Participation and Position in GVCs: Statistical Observations from APEC Member Economies
3.1. Forward and Backward Participation Rates
3.2. Upstreamness Index

Ⅳ. The Value-added Creation Effect of GVC Participation: An Empirical Investigation for APEC Member Economies
4.1. Model Specification
4.2. Data and Summary Statistics
4.3. Empirical Results
4.4. Policy Implications

Ⅴ. Summary and Concluding Remarks

References

Appendix


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