The turning point of domestic value creation in exports based on the knowledge-capital model

Kazuhiko Oyamada and Hiroyuki Taguchi ()

No 805, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper explores how the empirical turning point of regaining domestic value-added embedded in exports corresponds to the theoretical transformation in types of foreign direct investment that host emerging market economies invite. Utilizing panel data from of 72 middle-income countries from 1990 to 2018, compiled from the latest UNCTAD–Eora Global Value Chain Database, non-linear U-shaped curves (alternative smile curves) in the relationships between the domestic value-added share to exports and GDP per capita, derived from an extended version of the knowledge-capital model, were empirically estimated and tested for statistical significance. The results show that manufacturing-based middle-income economies have a meaningful U-shaped curve, with the turning point at approximately $2,000 US GDP per capita. Subsequently, we further examined geographical characteristics and found that the Asian and Latin American middle-income economies have their own curves with different turning points.

Keywords: knowledge-capital model; global value chains; alternative smile curve; Economy (search for similar items in EconPapers)
JEL-codes: F12 F14 F23 (search for similar items in EconPapers)
Date: 2020-12
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 805. 2020-12

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