Global-value-chains participation and industrial upgrading in Asian developing economies

Asian economies have been and will be a growth center in the world. One of the driving forces for Asian economic growth seems to be their economic integration through forming global value chains (hereafter GVCs) especially in manufacturing sectors. This chapter aims to investigate the dynamic economic impacts of GVCs participation in Asian developing economies from the following two analytical angles. Since the creation of GVCs usually involves the prevailing foreign direct investment (hereafter FDI) undertaken by transnational corporations, we first examined the impacts of FDI on the growth of GDP and exports focusing on ASEAN economies including latecomers and forerunners in their economic developments, by conducting causality tests in the vector auto-regression model. The analytical outcomes represented the clear causality from FDI to GDP and exports as well as the opposite causality from GDP and exports to FDI for a group of ASEAN economies, although individual economies has different causality relations. It implied that FDI has been a driving force for economic growth through capital accumulation and technological transfers, while FDI inflows have been attracted to the growing economies and markets. It should also be noted that the significant causality from FDI to exports might imply that the inward FDI has facilitated the GVCs participation in Asian economies. We second examined the economic impacts of GVCs participation by analyzing the value-added-trade data in Asian developing economies. We observed that the GVCs participation in manufacturing sectors has allowed the absolute domestic value added for their exports to contribute to their GDP growth. We also found that the development paths of domestic value added contributions to exports in the GVCs participating economies have followed “smile curve” with its turning point being 5,651 U.S. dollars in per capita GDP. It implied the dynamic impacts of GVCs participation, where at the initial stage of GVCs participation the domestic value added contributions to exports have reduced, but have recovered at the later stage of GVCs involvement with upgrading domestic productive capacities. It should also be noted that the turning points of “smile curves” differed according to manufacturing sectors: the sectors of food, textile, and wood products reached the turning point at lower per capita GDP and at higher ratio of domestic value added contributions to exports than those of machinery, electrical, and transport equipment