Upgrading in GVCs

Unlike GVC participation, the methodology for GVC upgrading lacks a unified consensus. We categorize upgrading into three distinct types: functional, structural, and technological. Our empirical focus primarily lies on structural upgrading. We use the “flying geese” model as a reference to sequentially explain structural shifts that also influence the patterns of forward and backward participation. Our analysis reveals that the proportion of domestic value added (DVA) in exports, which is a benchmark for structural upgrading, has seen a downturn in certain regions. Nevertheless, the adverse effects on the share of DVA addition to exports are outweighed by the benefits of broader export expansion. The results of our econometric analysis can be summarized as follows. First, even after accounting for the three-dimensional fixed effects and traditional factors of GVC participation, two variables remain significant: domestic industrial capacity and the presence of an educated workforce. Second, an educated labor pool not only enhances the volume but also the share of DVA in exports. Lastly, the significance of an educated workforce becomes even more pronounced when structural upgrading is evaluated, especially concerning the share of DVA in exports within both the manufacturing and service sectors.