UPSE-PCED Friday Seminar, featuring Associate Professor Adrian R. Mendoza, PhD, currently the College Secretary of the UP School of Economics.

Abstract: This paper develops a theoretical and empirical framework to examine how the dynamic interaction of global value chains (GVC) participation and technological capabilities shape economic upgrading and income convergence. The conceptual model highlights the dual role of GVCs: they facilitate knowledge spillovers and diffusion but may also generate lock-in effects when domestic capabilities are weak relative to a critical threshold. The model predicts the existence of a high-capability equilibrium and low-capability trap, depending on the interaction between domestic innovation effort and GVC integration. Econometric analysis of cross-country data from 1995 to 2018 points to the stock of complex technological capabilities as key driver of income upgrading. In contrast, GVC participation has weak and context-dependent effects, becoming beneficial only when complemented by strong domestic absorptive capacity. The upgrading impact of GVC participation seems strongest for the early industrialization of low-income economies. For middle income countries, greater GVC integration without strong domestic capabilities may even hinder upgrading, reinforcing the notion of a trap. The findings underscore that successful structural transformation requires not just integration into GVCs, but sustained investments in innovation, skills, and productive knowledge.

JEL code: F43, F63, O30, O40, O47

Keywords: global value chains, middle income trap, technological upgrading, economic complexity

Please register using the link below or by scanning the QR code in the poster:

Onsite: https://tinyurl.com/5n7mbd2w