What matters for a country to participate in global value chains? An empirical evidence

Abstract

In the last few decades, the countries’ participation in global value chains (GVCs) has increased due to the increased production fragmentation of tradable goods. The GVC participation is also linked to the economic transformation many countries have witnessed in the last few years. To understand the trajectory of economic transformation through GVC participation, it becomes imperative to determine the factors affecting the country’s participation in GVCs. The present study is an attempt in this direction. While considering the country-specific development and participation level as per the GVC taxonomy, the empirical findings suggest that the internal factors, including the country’s resource share, domestic industrial capacity, and labor composition, significantly influence GVC participation. On the other hand, external factors, including the inflow of FDI, distance to the GVC hubs, tariffs on manufacturing products, and participation in trade agreements, significantly affect the country’s participation in GVCs. To ensure the robustness of empirical findings, the study uses the Driscoll and Kraay (1998) approach, which caters to various estimation issues with panel data of various participating countries from 2000 to 2018.