Value-Added Erosion in Global Value Chains: An Empirical Assessment

Jose Caraballo-Cueto and Xiao Jiang

Journal of Economic Issues, 2016, vol. 50, issue 1, 288-296

Abstract: In the period from 1995 to 2008, many countries experienced what we call the “value-added erosion.” It describes the decline in the sectoral shares of domestic value-added in a country’s exports as the country becomes more integrated into the global value chains (GVCs). We argue that the decline of the domestic value-added share in a country’s exports is likely to be caused by the expansion of high value-adding activities performed by foreign lead firms in the upper stream of the GVCs. The variables of interest — the domestic value-added share in exports and foreign high-skill labor embodied in a country’s exports (a proxy for foreign lead firms’ high value-adding activities) — are estimated using a multi-regional global input-output model. Using these results and other control variables, we apply a panel cointegration model to explain and assess the likelihood of value-added erosion and its possible determinants.

Date: 2016
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DOI: 10.1080/00213624.2016.1148991

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