Global value chains, national innovation systems and economic development

The purpose of this paper is to examine the hypothesis that increased participation in global value chains (GVCs), such as assembly of imported parts for exports, leads to higher economic growth. The focus is particularly on the extent to which this holds for low-income countries, and the role that capability-building, i.e. development of the national innovation system, plays in the possibility of benefitting from GVCs. The analysis is based on evidence from 125 countries over the period 1997-2013. To analyse the issue, a comprehensive framework that allows for inclusion of a range of relevant factors, including GVC participation (measured by the foreign value added embodied in a country's exports), is applied. The results suggest that countries that increase GVC participation do not grow faster than other countries, when other relevant factors are controlled for. Small countries, and countries with low capabilities, appear to be particularly disadvantaged.