The Impact of Global Value Chain Participation on Inflation: Evidence from Producer Price Index of Korea and China

This study investigates the influence of global value chain (GVC) participation in the manufacturing sector on inflation in Korea and China. Additionally, it examines the impact of GVC participation on inflation of different manufacturing industries based on technology intensity in both countries. We employ Wang et al. (2017) approach utilizing the ADB MRIO database, with Korea and China as our sample and used the FGLS model to consider the impact of GVC participations on inflation between Korea and China's 15 manufacturing industries from 2007 to 2021. The results indicate that GVC participation and backward participation in Korean manufacturing have a significant positive effect on inflation. In China, GVC participation and backward participation show a significant negative effect on inflation. Furthermore, while the effect of GVC participation on inflation in Korea and China did not show differences by the technology intensity. In Korea, medium-high-tech industries, GVC participation, forward and backward participations have a positive significant effect on inflation. Medium-low-tech industries exhibit a positive impact from GVC and backward participations, while low-tech industries demonstrate a negative effect from GVC, forward, and backward participations on inflation. In China, backward participation in the medium-high-tech and low-tech manufacturing sectors has a significant negative impact on inflation.