Do Asian Countries Upgrade in Global Value Chains? A Novel Approach and Empirical Evidence

• Author: Rana Hasan,Zhigang Li,Quanrun Chen,Gaaitzen de Vries
• Date: 01 March 2019
• DOI: http://doi.org/10.1111/asej.12166
• Published date: 01 March 2019

Do Asian Countries Upgrade in Global Value

Chains? A Novel Approach and Empirical

Evidence*

Gaaitzen de Vries, Quanrun Chen, Rana Hasan and

Zhigang Li

Received 2 August 2017; Accepted 1 November 2018

This paper examines the move into upstream and downstream global value chain

(GVC) activities by 11 Asian countries. We use international input–output tables

in combination with employment data and measure the number of workers in each

country involved in manufactures GVC. Jobs are classified by business function

based on occupational information, such as R&D, fabrication, logistics, sales and

marketing. In most Asian countries, we find a faster employment increase in

R&D and other support services relative to fabrication activities between 2000

and 2011. However, the participation in GVC and the pace of upgrading appears

to differ substantially across Asian countries. We use a structural decomposition

method to explore the role of trade, consumption and technological change in

accounting for changes in countries’involvement in GVC.

Keywords: functional upgrading, global value chains, multi-region input–output

tables, structural decomposition analysis.

JEL classification codes: D57, F16, F63.

doi: 10.1111/asej.12166

I. Introduction

Asia’s labor force is rapidly evolving. The average years of schooling of Asia’s

population nearly doubled between 1970 and 2010, rising from approximately

*de Vries (corresponding author): Groningen Growth and Development Centre, Faculty of Eco-

nomics and Business, University of Groningen, Room 5411.512, Nettelbosje 2, 9747 AE, Groningen,

the Netherlands and University of International Business and Economics, Beijing, China. Email: g.j.

de.vries@rug.nl. Chen: School of Statistics, Universityof International Business and Economics, Bei-

jing 100029, PR China. Email: qrchen@amss.ac.cn. Rana Hasan: Economic Research and Regional

Cooperation Department, Asian Development Bank, Mandaluyong City, Philippines, Email:

rhasan@adb.org. Zhigang Li: Economic Research and Regional Cooperation Department, Asian

Development Bank, Mandaluyong City, Philippines. Email: zli@adb.org. We are grateful for helpful

comments from a referee and participants at the 24th International Input–Output Conference in Seoul

and the ADB 2016 Key Indicators workshop in Manila. We also thank Mahinthan J. Mariasingham

for his advice on the use of the ADB Multi-Region Input–outputDatabase. The views expressed in this

publication are those of the authors and do not necessarily reflect theviews and policies of ADB or its

Board of Governors or the governments theyrepresent. The ADB does not guarantee the accuracy of

the data included in this publication and acceptsno responsibility for any consequence of their use.

© 2019 The Authors. Asian Economic Journal published by East Asian Economic Association and

John Wiley & Sons Australia, Ltd

This is an open access article under the terms of the Creative Commons Attribution License, which permits use,

distribution and reproduction in any medium, provided the original work is properly cited.

Asian Economic Journal 2019, Vol.33 No. 1, 13–37 13

4 to nearly 8 years (ADB, 2015a). In particular, the share of tertiary-educated

youth (aged 15 to 29) has rapidly increased in many Asian countries. Contempo-

raneous to the increase in educational attainment has been the formation of pro-

duction networks that cross national borders. Baldwin and Lopez-Gonzalez

(2015) document the rapid emergence and expansion of ‘Factory Asia’. The

increasing skill level and the expansion of production networks appears at odds

with the finding by Rodrik (2016) and Felipe et al. (2015) of premature deindus-

trialization in Asia. That is, manufacturing employment shares in Asia have

recently peaked at relatively low levels of economic development. How are these

trends connected? A possible answer the present paper explores is that Asian

economies who educate their workforce also manage to upgrade in global value

chains (GVC) and, thus, increasingly undertake more upstream and downstream

service activities, such as R&D (upstream) and sales and marketing (down-

stream), relative to fabrication activities.

A rich body of literature already exists that uses case studies to examine

upgrading development paths in Asia. This research identifies upgrading trajec-

tories for firms, initially from focusing on fabrication to ultimately branding

their own manufactures (Gereffi 1999). As f irms upgrade, they acquire new

functions in the GVC, such as design or marketing that require enhanced human

competences (Humphrey, 2004). For example, Sturgeon and Lee (2005) describe

contract manufacturers in the Taipei, China electronics industr y who extended

their activities from assembly to product redesign, logistics and after-sales ser-

vices and repair. Thus, the increase in skills of Asia’s labor force is seen as

going hand in hand with upgrading in value chains. So far, however, much of

this analysis has been qualitative and for selected firms or industries. What is

missing is a quantitative analysis of macroeconomic upgrading trends by Asian

countries in GVC.

Analyzing upgrading in GVC at a more aggregated level is not straightfor-

ward and we aim to take a first step. A major bottleneck is the empirical identi-

fication of GVC. Typically, use is made of measures of foreign direct

investment, imports and exports over GDP or the share of intermediate imports

in overall imports. Even when this type of data is available, it is still not captur-

ing how activities are combined in GVC.

This paper adopts an empirical method for identifying GVC. We follow Tim-

mer et al. (2014) and define a GVC as all activities that are directly and indi-

rectly needed for producing a final (manufacturing) product, such as cars or

electronics. We measure the participation of 11 Asian economies in manufac-

tures GVC between 2000 and 2011. An important contribution we make is

modeling the type of jobs involved in GVC as in Timmer et al. (2018). What

matters for the effect of expanding production networks on domestic labor

demand is the job content which can be inferred from data on the activities car-

ried out by a country involved in GVC (Krugman, 2008).

Our analysis is an extension of research that has been done so far. Recently,

researchers have measured the domestic value-added content of exports in Asia

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