Paths of economic development: a global evidence for the mediating role of institutions for participation in global value chains

Abstract

Integration into global value chains (GVCs) provides opportunities for economic development, but the extent and nature of these opportunities differ across countries. The economic impact of a country's participation in GVCs can be modified by domestic institutional arrangements in a variety of ways depending on the types of GVCs. Most recent empirical and correlational studies assume that causality leads to economic growth through the participation of GVCs and institutions, but an inverse relationship between them is also feasible and only a few studies have analyzed this possibility. Using a large panel data set of sixty countries from 2000 to 2016, this paper contributes to closing these gaps using instrumental variable analysis as an empirical strategy. Key findings include that GDP per capita is positively affected by participation in GVCs and that this effect is greater when such participation is accompanied by institutional facilitation. These findings suggest that participation in GVCs accompanied by wellfunctioning domestic institutions can be highly effective in enhancing countries' economic growth.

Managing the institutional environment and impact on the competitiveness of transitional economies

“…There are the "old" institutional economics and the "new" institutional economics (Hodgson, 2003 9770/jesi.2021.8.3(32) century to answer the prevailing, neoclassical, and liberal economic thought. Nadeem et al, (2020) study indicate that participation in gross value chains positively affects GDP per capita, and this effect is greater when participation is facilitated by an institution. This data suggests that the inclusion of domestic institutions in strong gross value chains can greatly enhance a country's economic growth.…”

A journey toward global value chain upgrading: Exploring the transition from backward to forward integration

“…A number of obstacles on both the receiving and sending sides of this process may stand in a way of upgrading such as capability gaps (McDermott and Pietrobelli, 2017) and hierarchical barriers that permeate upgrading within GVCs (Kergroach, 2019). These barriers limit a nation's ability to move beyond low value-added activities (Stöllinger, 2016) to the next stage of upgrading (Engel and Taglioni, 2017;Nadeem et al, 2021) and can lock them in the middle-income trap (Gill and Kharas, 2015).…”

“…GVCs are prone to captive relationships (Gereffi et al, 2005) and complex transactions (McDermott and Pietrobelli, 2017), which may act as barriers to knowledge and technology transfer. Efficient institutional frameworks reduce such barriers (Lundvall, 1992;Morrison et al, 2008;Stöllinger, 2016;Nadeem et al, 2021;Pleticha, 2021) by shaping the incentives, rules and infrastructures relevant to upgrading. To this end, institutions enhance the ability of nations to take advantage of the learning and skill acquisition opportunities offered by GVCs (Pietrobelli and Rabellotti, 2011;Ndubuisi and Owusu, 2021).…”

“…Kummritz et al (2017) and Jangam and Rath (2021) have highlighted the role of policies related to inputs, outputs, investment, business climate, and financial and labour market institutions in upgrading through GVCs. (Nadeem et al, 2021) argue that the effectiveness of domestic institutions contributes to the positive impact of GVCs on economic growth, while Lee et al (2018) show the importance of local innovation systems in the upgrading process driven by the participation in GVCs. However, these studies have typically assessed capability accumulation and upgrading through backward or forward patterns in isolation, without considering their interconnectedness and the impact of institutions on the transition between these two integration patterns.…”

“…The above discussion sets foundations for examining how nations transition from one GVC integration pattern to another. Broadly speaking, countries can participate in GVCs either through backward linkages as predominant value importers or through forward linkages where they export value (Pietrobelli and Rabellotti, 2011;Ge et al, 2018;Nadeem et al, 2021).…”