Speed of convergence in global value chains: Forward or backward linkage

Area of Science:

• Economics
• International Trade
• Econometrics

Background:

• Global value chains (GVCs) are crucial for developing economies' integration into the global economy.
• The COVID-19 pandemic introduced significant uncertainty, potentially disrupting global trade and GVC participation.
• Understanding convergence dynamics within GVCs is vital for assessing economic development trajectories.

Purpose of the Study:

• To investigate the speed of convergence in global value chain (GVC) participation.
• To analyze the distinct contributions of forward and backward GVC linkages to value-added.
• To examine the influence of foreign direct investment (FDI) on GVC convergence and the early impact of the COVID-19 pandemic.

Main Methods:

• Employed system generalized method of moments (GMM) for dynamic panel data analysis.
• Utilized a forward and backward GVC participation approach to differentiate value-added contributions.
• Analyzed the Asian Development Bank multi-regional input-output database (2010-2019) for pre-pandemic trends and early pandemic effects.

Main Results:

• Evidence of convergence in both forward and backward GVC participation was found, with varying speeds across country groups.
• Association of Southeast Asian Nations (ASEAN) countries showed faster forward GVC convergence compared to advanced economies.
• Advanced economies exhibited faster backward GVC convergence, and FDI was identified as a significant factor in GVC participation.

Conclusions:

• Global value chain (GVC) participation exhibits convergence, but the pace differs significantly between forward and backward linkages and among country groups.
• Foreign direct investment (FDI) is a critical driver influencing a country's integration and convergence within global value chains.
• The COVID-19 pandemic has had a discernible negative effect on overall GVC participation, highlighting the vulnerability of interconnected economies.