The Dual Effects of Global Value Chain Embeddedness on Chinese Exports’ Technological Sophistication

Liu Weilin 1, Li Lanbing 2 and Liu Yuhai 3

1 Research Institute for Economic and Social Development, Nankai University, Tianjin, China
2 School of Economics, Nankai University, Tianjin
3 School of Economics, Dalian Polytechnic University, Dalian, China

Abstract:  This paper develops a framework for the assessment of global value chain embeddedness based on the dual structure of product embeddedness and functional embeddedness and provides a theoretical demonstration of the dual effects of the level, structure and the value sources of global value chain embeddedness on export technology sophistication. From there, the paper carries out an estimation of non-competitive input-outputtable using quadratic optimized algorithm with differentiation between processing trade and general trade to arrive at various indicators of foreign value-added ratio that reflect the level of global value chain embeddedness. On this basis, the panel econometric model for 27 manufacturing sectors of China between 2001 and 2010 is employed to test the effect of foreign value-added ratio on the technology sophistication of manufacturing export. Our research indicates that by taking part in division of labor in the global value chain and acquiring foreign intermediate inputs, China’s manufacturing sector has increased its export technology sophistication. It also indicates that, compared with such inputs as raw materials and parts and components, service input has great contributions to technology improvement. With the direct contributions of foreign value-added under control, the foreign value-added from developed countries has a restrictive effect on the R&D activities of export manufacturing, which gives rise to the one-way technology reliance on dominant enterprises of the value chain and the “low-end lock-up” effect; meanwhile, the method of embeddedness that takes advantage of the foreign value-added of other countries is more dependent on the indigenous R&D capacity of export enterprises and thus more favorable to the improvement of export technology sophistication.

Keywords: global value chain, foreign value-added, export technology sophistication, vertical professionalization

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