Trade for catch-up: examining how global value chains participation affects productive efficiency

Gideon Ndubuisi*, Solomon Owusu

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

A substantial part of production and trade now takes place through global value chains (GVC), making it an essential conduit of knowledge spillover and technology transfer. Yet, extant studies examining how countries become productively efficient and catch-up to the global efficiency frontier through international trade have ignored the possible role of GVC in fast-tracking this process. This paper provides the first empirical evidence that fills this knowledge gap. We propose a two-stage empirical strategy to this end. First, we use a data envelopment analysis (DEA) approach to compute a measure of productive efficiency—defined herewith as a country’s relative productive efficiency to the global productive efficiency frontier. Second, we use the productive efficiency index as an outcome variable in a reduced-form equation that controls for GVC participation and its interaction with country characteristics that influence the gains from GVC participation. In addition to using the panel fixed effect method, we estimate the reduced-form equation with the difference-GMM to address endogeneity issues, and the Tobit and Fractional Response models to address the bounded nature of the productive efficiency index. We find strong evidence suggesting that GVC participation enables technology-lagging countries to become more productively efficient as well as catch-up to the global efficiency frontier. We also find that the productive efficiency and catch-up gains from GVC participation accrue more strongly to countries that have a high human capital stock, a well-functioning financial market, maintain stable macroeconomic conditions, and specialize in downstream activities in the value chain.
Original languageEnglish
Pages (from-to)195-215
Number of pages21
JournalJournal of Productivity Analysis
Volume59
Issue number2
DOIs
Publication statusPublished - 2023

Keywords

  • Catch-up
  • F00
  • F01
  • F14
  • Global value chains
  • Production networks
  • Productive efficiency
  • Upstream specialization

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