Does Global Value Chain Integration Enhance Export Competitiveness? Evidence from Indonesia’s Industry-Level Analysis

ABSTRACT

We investigate the association between global value chain (GVC) integration and export competitiveness for 34 Indonesian industries from 2007 to 2020. Using panel unit root, panel cointegration, panel long-run estimator, and panel granger causality, we find the following key findings: First, we find that GVC integration and export competitiveness are cointegrated or share a long-term association. Second, we find that GVC integration favorably impacts export competitiveness over time. Third, we confirm the existence of a unidirectional causal link between GVC integration and export competitiveness. Fourth, we also discover results linked with the kind of GVC integration (forward, backward, and two-sided) and the industry type (manufacturing, services, labor-intensive and capital-intensive industries). These findings aid policymakers in the formulation of suitable measures to enhance GVC integration to strengthen the export competitiveness of Indonesian industries.

KEYWORDS:

• Global value chains
• export competitiveness
• Indonesia
• panel cointegration

JEL:

• F1
• C5
• L6
• L8

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. Appendix A has a list of the industries.

2. The sample period was chosen solely based on the availability of 35 industry level disaggregated data for Indonesia.

3. The capital to labor ratio is calculated for each time period, and the average value for the entire time period is used to classify industries as labor or capital intensive. The capital and labor data for each industry are extracted from the world input output database (https://www.rug.nl/ggdc/valuechain/wiod/?lang=en). Due to data availability constraints, the data considered for the analysis spans from 2000 to 2014. Some industries do not have industry-specific capital-labor data. We classified those industries based on the overall capital-labor ratio in the industry. Appendix A has a list of the industries categorized into manufacturing, services, labor-intensive and capital-intensive industries.