Global value chain, industrial agglomeration and innovation performance in developing countries: insights from China’s manufacturing industries

Abstract

Extant research about global value chains (GVCs) has focused on its economic effects, while the innovation effects of GVCs remain understudied, especially for developing countries. This study explores the effect of GVC involvement along two dimensions – GVC participation and GVC position – on innovation performance in China’s manufacturing industries. We also investigate the interaction effects of GVC involvement and industrial agglomeration on innovation performance. With a sample of 15 manufacturing industries in China from 2005–2015, we find that China’s manufacturing industries have substantial participation in GVCs, but they are located mainly at low positions in GVCs. In addition, the study shows strong evidence that GVC participation has an inverted U-shaped effect on innovation performance, whereas the effect of GVC position on innovation performance is positive. Finally, we find that the interaction effect of GVC position and industrial agglomeration positively influence innovation performance, while the interaction effect of GVC participation and industrial agglomeration is negative. These empirical findings have important theoretical and policy implications.