How Does GVCS Participation Influence Manufacturing Productivity? The Case of China

The theoretical and empirical studies argue ambiguous effects of GVCs participation of developing countries on productivity. By using panel data of 15 Chinese manufacturing industries over the 2005-2014 period, we find that China’s GVCs backward and forward linkages contributed to labor productivity growth of 6.41% and 1.97% per year on average respectively, via drawing out from low value added low labor cost backward linkages sectors, optimizing resource allocation towards more efficiency manufacturing sectors (rarely studied) and developing higher value added forward linkages. The resulting structural transformation along to the rise of labor costs diminished the risk for Chinese manufacturing industry to be trapped in low-profitability low productivity GVCs activities. However, the productivity contribution of moving out from backward linkages 3 times higher than that of forward linkages suggest that the future positive impact of GVCs on productivity may be much more difficult to realize in particular in a less favorable context (trade war between China and USA, reindustrialization of developed countries and trade protection related to Covid-19 etc.) than the studied period.