Global Value Chain.Skill Learning,and Innovation

Global Value Chains(GVCs)are important progresses in the evolution of international specialization pattern since 1990s:under the organization forms of multinational corporation or offshoring,developing and developed countries are specialized in distinct stages of production,where the output of last stage is devoted to the next stage as input for the whole production stages from material to final.How is this value chain specialization pattern possible?How is it determined?And can it persist in the long run?New Ricardian trade theory such as Costinot,Vogel,and Wang(CVW,2012,2013)suggests that the decline in trade cost are important reasons for the emergence of GVCs,and the technological gap and difference in skill endowment across countries determine the pattern of value chain specialization.This paper extends the CVW model theoretically,focusing on how the skill learning activity of labor and the research and development of firm influence the dynamic evolution of value chain specialization.To this end,we simplify CVW into a 2-country(north and south)-2-labor(unskilled,skilled)sequential production model,where skilled labor is characterized with higher production efficiency(lower mistake rate),and north holds larger proportion of skilled labor.First,we assume there are no skill learning and technology progress,and pin down the specialization pattern under National Value Chains(NVCs)and GVCs respectively.Then,labors are allowed to upgrade their skills.Within search-theoretic settings,we study its influence on the pattern of value chain specialization,and investigate possible mechanism contributing to the persistence of north-south specialization under GVCs.Finally,firms are allowed to conduct research.Under Schumpeterian innovation framework,we study the influence of GVCs on two types of research activities(innovation and imitation),and how the latter ones determine the value chain specialization and profit distribution.Our main conclusions are as follows.First,without skill learning and technology progress,world skill endowment uniquely pins down the organization mode of global production as well as skill premium;individual country’s skill endowment determines its position in GVCs.Developing countries with more unskilled labor join GVCs typically at low stages where they enjoy comparative advantage,and export intermediate product to developed countries for further processing.The completed products are then sold back to developing countries.This international specialization improves the production efficiency,narrows the skill premium in developing countries,but enlarges it in developed ones.Second,when labors are allowed to learn skills,knowledge externality can result in multiple equilibria.Under GVCs,local spillover of knowledge,difference in learning efficiency,subjective discount rate/death rate can possibly induce and maintain north-south specialization pattern,where north dominates south in skill endowment,education and training expenditure,GDP,leading industries,export profile and citizen’s expected life-cycle income.Specifically,the north-south gap can even expand under GVCs,since south skill premium is narrowed which suppress investment in education.Third,when firms are allowed to do research,difference in skill endowment across countries not only influences comparative advantage in production,but also determines comparative advantage between innovation and imitation.The emergence of GVCs lowers production cost,increases operation profit,and incentivizes investment to research.Since north has more skilled labor,it will specialized in innovation while south in imitation.Under the new equilibrium,north can control more industries,slicing more value along the global value chains.