The Role of Innovation in Upgrading in Global Value Chains

ABSTRACT

We examine the role of innovative efforts in industries from the perspective of global value chains (GVCs). We set up a simple model and empirically test it using patent and bilateral export decomposition data. The model shows that innovative activities assumed to decrease the cost of conducting high-skilled tasks can upgrade the position of the industry in GVCs. This is also supported by data on patents and GVC-related data from the OECD and the Asian Development Bank. The empirical results reveal that a higher number of patent applications are closely related to more production of intermediate goods rather than assembly.

KEYWORDS:

• Innovation
• patent
• global value chains
• offshoring
• upgrading

JEL Classification:

• F23
• F60
• O30

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The list of 63 countries are summarised in Table A1.1.

2 The list of 15 sectors are summarised in Table A2.

3 The list of 20 countries are summarised in table A1.2.

4 The results are also robust for more or less than 20 countries. However, the results are no longer statistically significant when all 63 countries are included because many countries do not participate in GVCs and they report zero patents.

5 The list of 13 countries are summarised in Table A1.3.

6 The list of 8 Asian countries are summarised in Table A1.4.