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Do Global Value Chains Enhance Economic Upgrading? A Long View. Stefan Pahl and Marcel P. Timmer Groningen Growth and Development Center University of Groningen, the Netherlands Nordic Conference on Development Economics, Helsinki, 11 June 2018

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Do Global Value Chains Enhance Economic Upgrading? A Long View.

Stefan Pahl and Marcel P. Timmer

Groningen Growth and Development Center University of Groningen, the Netherlands

Nordic Conference on Development Economics, Helsinki, 11 June 2018

Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 1 / 21

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Motivation

Slow industrialization in many developing countries (e.g., Rodrik, 2016) Global value chain (GVC) participation as panacea for development (e.g., Baldwin, 2014; World Bank, 2017) Scepticism (e.g., Gereffi, 1999; 2014) Do Global Value Chains Enhance Economic Upgrading? Cross-country studies for recent periods and limited sets of countries. We provide long-run (1970-2008) and wide coverage (58 countries, 39 non-high income). Complement to case studies and firm-level evidence.

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Operationalization

Economic Upgrading Labor productivity growth: value added per worker (see Rodrik, 2013

n unconditional convergence)

Employment growth: workers in formal manufacturing (see Sen, 2017

n scale effects)

GVC approach Focus on value added and employment in exporting industry, but also in all industries contributing indirectly Here: formal manufacturing industries

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Domestic value added in exports

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Main variables

Manufacturing value added: MVAp = vMfg ∗ (I − Adom)−1 ∗ ep Manufacturing employment: MEMPp = empMfg ∗ (I − Adom)−1 ∗ ep Labour productivity: MLPp = MVAp/MEMPp GVC participation: VAXDrp = v ∗ (I − Adom)−1 ∗ ep/ep (bound between 0 and 1, see also Hummels et al., 2001; Koopman et al., 2012)

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Data

1. National Input-output tables between 1970 and 2008 with 14

manufacturing industries and 5 broad sectors (from Pahl and Timmer, 2018).

2. Formal manufacturing output, value added and employment series from

UNIDO’s Indstat2 (2016), after harmonization. 14 manufacturing industries 58 countries, 39 non-high income Baseline analysis: average growth over 10-year periods

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Results

Illustrative example: Automotive value chain 1995 to 2008

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Results

Illustrative example: Automotive value chain 1995 to 2008

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Results

Illustrative example: Automotive value chain 1995 to 2008

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Results

Descriptive findings

Developing countries Labor productivity Employment Labour productivity growth diff-in-means t-value: 4.10 Employment growth diff-in-means t-value: 0.28

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Results

Econometric specification

g(mlppct) = β0+β1l.Vpct+β2l.mlppct+β3(l.mlppct∗l.Vpct)+Cc+Tpt+ǫpct g(memppct) = β0+β1l.Vpct+β2l.mlppct+β3l.Regct+β4l.Humct+Tpt+ǫpct V: GVC participation (VAX-D ratio) mlp: labour productivity Interaction term Controls: product-time dummies (T), country dummies (C) or country-level variables

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Results

Growth of labour productivity in exports

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Results

Growth of labour productivity in exports

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Results

Growth of labour productivity in exports

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Results

Growth of labour productivity in exports: marginal effects

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Results

Growth of employment in exports

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Results

Growth of employment in exports

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Results

Growth of employment in exports

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Results

Growth of employment in exports: marginal effects

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Conclusion

GVC participation supposedly offering quick route to productivity and employment generation. Main contribution: long-run macro evidence on a large set of developing countries. Positive association with labour productivity growth, in particular in poorer countries. However, effect relatively small. No evidence for positive effect on employment growth GVCs provide opportunities for upgrading, but it is not automatic.

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Thank you for your attention! s.pahl@rug.nl

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