Does International Fragmentation of Production and Global Value Chains Participation Affect the Long-run Economic Growth?
| DOI | http://doi.org/10.1177/00157325211050448 |
| Published date | 01 November 2022 |
| Date | 01 November 2022 |
| Subject Matter | Articles |
Does International
Fragmentation of
Production and
Global Value Chains
Participation Affect
the Long-run Economic
Growth?
Camila do Carmo Hermida1 ,
Anderson Moreira Aristides dos Santos1
and Mauricio Vaz Lobo Bittencourt2
Abstract
This article aims to investigate whether the international fragmentation of
production and the global value chains (hereafter GVCs) participation affects
the economic growth for a set of 40 advanced and emerging economies. It
considers four aspects related to the type of participation and position in GVCs
captured by different value-added measures: (a) vertical specialisation index;
(b) GVC participation index; (c) GVC position index in low-tech sectors; and
(d) GVC position index in high-tech sectors. A panel autoregressive distributed lag
(PARDL) model is pioneeringly employed to capture the long-term relationship
between economic growth and our four measures for annual value-added data
from 1995 to 2011, provided by the World Input–Output Tables (WIOT). The
main long-run results indicate that (a) higher levels of international fragmentation
of production and GVCs’ participation ensure higher GDP per capita growth
rates; (b) the fragmentation and GVCs’ participation are more important to GDP
Article
1 Graduate Studies Program in Applied Economics, Universidade Federal de Alagoas (PPGEA/UFAL),
Brazil.
2 Graduate Studies Program in Economic Development, Universidade Federal do Paraná (PPGDE/
UFPR), Brazil.
Corresponding author:
Camila do Carmo Hermida, Graduate Studies Program in Applied Economics, Universidade Federal
de Alagoas (PPGEA/UFAL), Maceió 57051-090, Brazil.
E-mail: camila.hermida@feac.ufal.br
Foreign Trade Review
57(4) 367–389, 2022
© 2022 Indian Institute of
Foreign Trade
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DOI: 10.1177/00157325211050448
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368 Foreign Trade Review 57(4)
growth than the gross exports as a percentage of GDP; (c) GVCs’ participation
index, which considers both the ‘forward’ and ‘backward’ participation, is less
important than the vertical specialisation, measured by the foreign intermediate
imports; and (d the countries engaged in upstream positions in low-technology
GVCs were positively and significantly benefitted in terms of growth.
JEL Codes: F14, F43
Keywords
Global value chains, vertical specialisation, value-added trade, economic growth,
panel ARDL
Introduction
Globalisation and the technological changes that took place at the end of the twen-
tieth century, especially innovations in areas like information and communications
technology (ICT) and transport, have brought remarkable changes in the interna-
tional trade. One of these changes is an intensification of the international fragmen-
tation of production—global geographic dispersion of components within vertically
integrated production processes (Baldwin, 2016; Jones & Kierzkowski, 1991).
This fragmentation, coupled with the technological innovations from the end of
1980s, enabled a global production system, known as global value chains (GVCs).
Empirical evidence shows that, in 2008, more than 60% of world trade—around
US$20 trillion—were concentrated in intermediate goods and services, 30% were
re-exportation of intermediates and 80% were carried out through GVCs, coordi-
nated by multinational companies (OECD, 2013; UNCTAD et al., 2013).
On the one hand, the economic literature indicates that some countries involved
in these GVCs, like China, have been benefitted with an extension of the scope
and processes of technological spillover through the chains (Lemoine &
Ünal-Kesenci, 2004). Various reports from international organisations (OECD,
2013, 2015; UNCTAD, 2013, 2018; UNCTAD et al., 2013) point out that success
in terms of export and economic performance is strongly related to trade, in which
GVCs’ participation contributes in a decisive way. In the recent context of diffi-
culties for the growth resumption in several developing countries, the insertion in
GVCs has often been cited as an opportunity to promote economic growth. On the
other hand, it poses various challenges to countries’ economic policies, insofar as
it has increased the interdependence of their business decisions and can be critical
in international crisis, for example, the recent export policy adjustment in response
to the adverse effects of the coronavirus disease 2019 (COVID-19) that spread to
supply chains.
Many studies with different theoretical and methodological approaches have
been developed from the economic literature aiming to understand the effects of
trade on economic growth (from Ricardo’s theory of comparative advantage until
new contributions to the foreign trade theory such as Dixit & Stiglitz, 1977;
Grossman & Helpman, 1991, 2015; Krugman, 1980; Sachs et al. 1995). However,
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