The impact of domestic market integration on firms’ upgrading in global value chains: evidence from China

Dongshen Cheng, Ying Jiang and Haiwei Li

Post-Communist Economies, 2026, vol. 38, issue 6, 665-698

Abstract: We examine the impact of domestic market integration on firms’ upgrading in global value chains (GVCs). Based on a multi-country and multi-sector theoretical model and firm-level data from China spanning 2000–2014, this study finds a significant U-shaped relationship between domestic market integration and firms’ upgrading in GVCs. Mechanism analysis shows that domestic market integration facilitates GVC upgrading by reducing trade costs and enhancing technological capabilities. Heterogeneity analysis further reveals that the effect is more pronounced for processing trade and non-state-owned enterprises; capital- and technology-intensive and low-competition industries; firms in central and western regions; and firms located in large cities. Moreover, domestic market integration amplifies the positive role of local demand in driving firms’ upgrading in GVCs.

Date: 2026
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DOI: 10.1080/14631377.2026.2666055

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