Promotion or hindrance? The threshold effect of services on global value chains

ABSTRACT

Using the World Input-Output Table (WIOD; Timmer et al. 2016), I introduce the proximity burden of service input to establish a threshold model, and examine the ‘double-edged sword’ effect of service input on the Global Value Chains, namely, it promotes the development of manufacturing in proximate districts but hinder those in faraway districts. I find that the service input has an inverted U-shaped effect on value chain development, and that local service input is restricted by proximity burden, which hinders the development of value chain. The findings are robust to heterogeneity analysis and endogeneity treatment.

KEYWORDS:

• Proximity burden
• services
• participation in global value chain
• threshold model

JEL CLASSIFICATION:

• F14
• F02

Acknowledgments

I acknowledge the funding support from China Postdoctoral Science Foundation (#. 2017M620704) and the Science and Technology Research Program of Department of Education of Jiangxi Province (#. GJJ180279). I am responsible for all errors in the article.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ In order to alleviate the endogenous impact of the data in the input-output tables, only the participation in the value chain of the sectors in the downstream manufacturing is adopted.

² UIBE GVC Index：http://rigvc.uibe.edu.cn/english/D_E/database_database/index.htm.

³ There are 42 countries and regions for data resource, because the data of Russia with numerous missing observations were deleted.

⁴ Following the classification of WIOD release 2016, sectors of services include r28, r29, r31, r32, r33, r34, r35, r39, r40, r41, r42, r43, r45, r47, r48. The service input sector is further divided into seven major sectors, namely, productive supporting services, wholesale, brokerage and agency services, freight transportation, warehousing and postal express services, information services, financial services, business services, R&D, design and other technical services.

⁵ Specific manufacturing sectors include r05, r07, r06, r08, r09, r13, r14, r15, r16, r22, r23, r10, r11, r12, r17, r18, r19, r20, r21 following the classification of WIOD 2016 as well.

Additional information

Funding

This work was supported by the China Postdoctoral Science Foundation [2017M620704];the Science and Technology Research Program of Department of Education of Jiangxi Province [GJJ180279].