Global Value Chains Participation and Knowledge Spillovers in Developed and Developing Countries: An Empirical Investigation

In this paper we investigate the relationship between participation in global value chains (GVCs) and countries' innovation performance. We use the recently released world input-output database to build spillover variables by weighting the aggregate R&D stock of partners supplying inputs with two alternative measures of participation in GVCs: the share of foreign value added in a country's gross exports and the offshoring index. We use these indicators to test empirically the relationship between a country's innovation performance, proxied by patent per capita, and spillovers generated by GVCs. Our results show that the involvement in GVCs, in particular for developing countries importing inputs from advanced economies, is positively related with a country's innovation outcome suggesting that international fragmentation of production can indeed be a channel allowing for international technology transfer from developed to developing countries.