Impacts Of GVC On Industrial Upgrading

As an important feature of global economy in recent years,Global Value Chains(GVCs)have become a significant driving force for global economic growth and employment creation.Since 2008,global economy entered structural adjustments,the world’s major economies,especially China,were facing enormous pressure from industrial upgrading and economic growth.The ratio of value added of China economy sharply decreased from above 29 percent during 2002-2007 to 19.9 percent in 2012,indicating a significant deterioration in China’s industrial upgrading.Therefore,impacts of GVCs on a country’s industrial upgrading emerge as an important academic and practical topic.This is particularly important for China,as a "world factory" which is constantly opening up to GVCs.The existing literature discussed much about how GVCs have impacts on a country’s industrial upgrading by international trade and investment,but less on how to identify clearly the effects in number.Theoretically,it is crucial to integrate international trade in intermediate goods along GVCs into the classical production function,linking value added with industrial upgrading,which has received less attention from scholars.Empirically,the existing empirical literature focuses on case studies rather than systematic analysis such as panel econometrics.This dissertation explores impacts of GVCs on industrial upgrading theoretically and empirically,and making up for above regrets.It starts from learning-by-doing model,then develops an endogenous economic growth model based on GVCs,estimates a production function based on the GVCs growth model using a 2002-2012 industrial panel data of China,and finally presents explicitly the impacts of GVCs on China’s industrial upgrading.As a result,this study finds rich implications for utilization of GVCs to promote industrial upgrading in China.This dissertation is developed as followings.Firstly,clarify connotation of industrial upgrading,as well as mechanisms of GVCs exerting on industrial upgrading.Secondly,build an endogenous growth model based on GVCs.Industrial upgrading is defined as a process of expanding value added by raising value of products and value added contained in one unit product.Mathematically,industrial upgrading is related to production function which is the function of value added.Therefore,the topic of GVCs-industrial upgrading nexus is converted into that of GVCs-economic growth nexus.Based on ideas of learning by doing model,relationships of intermediate input with production function,and mechanisms of GVCs’ impacts on industry upgrading through international trade and investment,this dissertation developed a GVCs growth model with total factor productivity(TFP)decided by intermediate imports,foreign capital and domestic capital.Thirdly,derive two types of equations,one is dynamic and the other is static,measuring contributions of GVCs to industrial upgrading(i.e.expansion of value added)and to benefit upgrading(i.e.increase in the ratio of value added)respectively.Fourthly,estimate impacts of GVCs on China’s valued added based on the above GVCs growth model,using several econometric panel methods with 31 industries and 2002-2012 periods.Fifth,calculate contributions of GVCs on industrial upgrading and benefit upgrading at aggregation level and industrial level respectively,and finally draw conclusions.This dissertation is of significance as follows.Academically,by improving endogenous growth theory,this dissertation construct its own growth model characterized by GVCs and derive equations to calculate GVC’s contributions on industrial upgrading,which could be expected to promote development of growth theory.In practice,this dissertation provides policy implications for China’s industrial upgrading,such as enhancing the ratio of value added by GVCs instead of only expanding output in order to keep a sustainable economic growth.The main conclusions of this dissertation are as follows.GVCs can positively promote industrial value added in China.During the period of 2002-2012,the elasticity of valued added to intermediate imports is 0.14,which means marginally,one percentage increase in growth of intermediate imports can cause 0.14 percentage increase in the growth of value added.,with other constant.In addition,the elasticity of value added to foreign capital is 0.1.GVCs contributes 22.7 percent to the accelerated growth of China’s industry in term of value added,of which 14.1 percentages from intermediate imports and other 8.5 percentages from foreign capital stocks.GVCs have been optimizing patterns of driving power of industrial upgrading in China.During the period of 2003-2012,industrial upgrading in China was still led by domestic capital,with increasing numbers of industries are gaining more power from knowledge and technique than traditional power such as labor and physical capital.Such transformation benefits much from GVCs.In all 31 industries,11 industries gain more driving power from GVCs than labors,and 3 industries gains more power from GVCs than domestic capital.The impacts of GVCs on industrial upgrading are different across industries.Compared to domestic stock and labor,the faster intermediate imports or foreign capital stock grow,the more GVCs’ contribution to industry upgrading are.For example,ICT sector ranks as the highest by its integration into GVCs in all sectors,but ranks only at the 17 th with GVCs’ 16.6 percentages contribution to sector upgrading,which is lower than the average industrial level.GVCs’ contribution to upgrading for textile industry,textile & garment industry are only 9.7 percent and 4.4 percent respectively,much lower than the average.GVCs contribute about 0.7 percentages to benefit upgrading of China industry as a whole,of which-0.1 percentages come from intermediate imports,other 0.9 percentages from foreign capital.GVC’s contribution is 31 percent of that of labor,and 14 percent of that of domestic capital.The contributions of GVCs to benefit upgrading are much different across sectors.During the period of 2003-2012,contributions of GVCs to benefit upgrading in textile industry,textile & garment industry are similar to the overall level.While in ICT sector,the GVCs contribute-4.1 percentages to its benefit upgrading and has a great space to improve.Those sectors with deep integration into GVCs always have lower ratios of value added.This means China is still at the low end of the evolved GVCs.For example,ICT sector owns the largest share in total value added of China’s industry and the most participation in GVCs,but ranks the 3rd lowest position by the ratio of value added in all 31 sectors.During the sample period,its ratio of value added decreased 3.3 per year,while the ratio of overall 31 sectors decreased from above 29 percent during 2002-2007 to 19.9 percent in 2012.This kind of production expansion is not sustainable in the long run.About the estimation method,fixed effect model is superior to random effects model and dynamic panel model in terms of panel data used in this paper.It was confirmed by all kinds of full sample and segmented samples estimations.The policy implications of this paper are as follows.GVCs are reliable to promote industrial upgrading.To reap this positive effect,it is better to make trade and investment policies GVCs-oriented,such as liberalization of intermediate imports and trade in services,efficient trade and investment facilitation,as well as investment liberalization.However,liberalization pace of trade in service and investment depends on the China’s international competitiveness.Continuous upgrading along GVCs is essential.By integration GVCs,China gradually transferred its industrial structure to modern style.However,in modern industrial sector,China always stays at the lower end of GVCs,which means lower ratio of value added and less possibility to upgrade into the line of advanced economies.More attention should be paid to imports,especially intermediate imports.This will bring advanced technology and competition mechanism for domestic enterprises,conducive to knowledge diffusion,improvement of total factor productivity and finally sustainable expansion of value added.More human capital accumulation and R&D investment are required.This is helpful for domestic enterprises to absorb the knowledge and technology spillover from upstream enterprises along GVCs.The main innovations of this paper are as follows.First,a theoretical model on endogenous growth characterized by GVCs has been constructed.It incorporates intermediate imports and foreign direct investment as determinants of TFP into production function.This is the key point of theoretical innovation of this dissertation,contributing much to the theoretical and practical relationship between GVCs and industrial upgradingSecond,two types of dynamic and static equations are derived to measure contributions of GVCs to industrial upgrading(i.e.expansion of value added)and to benefit upgrading(i.e.increase in the ratio of value added).Third,empirical experiment is innovative.Based on the endogenous growth model characterized by GVCs,with intermediate imports and FDI as proxies theoretical variable of GVCs,as well as with value added as the dependent variable,the impacts of GVCs on value added is estimated.Then based on the relationship between value added and ratio of value added,contribution of GVCs to ratio of value added is calculated.This experiment is completely different from purely statistic modeling with ratio of value added as dependent variable and GVC proxies as independent variables.Fourth,Conclusion clearly identifies different effects of GVCs(including its components)on China’s upgrading.The contribution of intermediate imports on industrial upgrading and benefit upgrading is larger than foreign capital.The roles of GVCs on industrial upgrading and benefit upgrading get increasingly important in nearly half of 31 sectors.The incompleteness of China’s raw industrial and imports index data may bring some limitations to this study.The following topics are valuable to be investigated in the future: GVCs’ impacts on upgrading in productive service sectors;cross-country comparison of GVCs-industrial upgrading nexus;international best practice on GVCs-industrial upgrading for China’s economic development.