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
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. Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 2 / 21
Operationalization Economic Upgrading Labor productivity growth: value added per worker (see Rodrik, 2013 on unconditional convergence) Employment growth: workers in formal manufacturing (see Sen, 2017 on scale effects) GVC approach Focus on value added and employment in exporting industry, but also in all industries contributing indirectly Here: formal manufacturing industries Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 3 / 21
Domestic value added in exports Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 4 / 21
Main variables Manufacturing value added: MVA p = v Mfg ∗ ( I − A dom ) − 1 ∗ e p Manufacturing employment: MEMP p = emp Mfg ∗ ( I − A dom ) − 1 ∗ e p Labour productivity: MLP p = MVA p / MEMP p VAXDr p = v ∗ ( I − A dom ) − 1 ∗ e p / e p GVC participation: (bound between 0 and 1, see also Hummels et al., 2001; Koopman et al., 2012) Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 5 / 21
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 Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 6 / 21
Results Illustrative example: Automotive value chain 1995 to 2008 Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 7 / 21
Results Illustrative example: Automotive value chain 1995 to 2008 Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 8 / 21
Results Illustrative example: Automotive value chain 1995 to 2008 Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 9 / 21
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 Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 10 / 21
Results Econometric specification g ( mlp pct ) = β 0 + β 1 l . V pct + β 2 l . mlp pct + β 3 ( l . mlp pct ∗ l . V pct )+ C c + T pt + ǫ pct g ( memp pct ) = β 0 + β 1 l . V pct + β 2 l . mlp pct + β 3 l . Reg ct + β 4 l . Hum ct + T pt + ǫ pct V : GVC participation (VAX-D ratio) mlp : labour productivity Interaction term Controls : product-time dummies (T), country dummies (C) or country-level variables Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 11 / 21
Results Growth of labour productivity in exports Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 12 / 21
Results Growth of labour productivity in exports Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 13 / 21
Results Growth of labour productivity in exports Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 14 / 21
Results Growth of labour productivity in exports: marginal effects Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 15 / 21
Results Growth of employment in exports Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 16 / 21
Results Growth of employment in exports Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 17 / 21
Results Growth of employment in exports Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 18 / 21
Results Growth of employment in exports: marginal effects Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 19 / 21
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. Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 20 / 21
Thank you for your attention! s.pahl@rug.nl Stefan Pahl and Marcel P. Timmer (RUG) GVC Upgrading 11 June 2018 21 / 21
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