Current Issue

Seoul Journal of Economics - Vol. 34 , No. 2

[ Article ]
Seoul Journal of Economics - Vol. 34, No. 2, pp.203-235
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 May 2021
Received 23 Mar 2020 Revised 08 Oct 2020 Accepted 13 Oct 2020

Global Value Chains and Innovation Systems: Exploring the Inter-relations
Swati Mehta
Swati Mehta, Assistant Professor, Punjab School of Economics, Guru Nanak Dev University, Amritsar, Grand Trunk Road, Off, NH 1, Amritsar, Punjab, 143005, India, Tel: 91-0183-282-3451 (

Funding Information ▼

JEL Classification: O31, O39, O40, O51, L60, F12, F15


Advances in transportation sector have shrunk the world in a matter of few hours while the inventions in information and communication technologies is giving time a miss. These together have transformed the structure of world production process. The nations are increasingly concerned about entering the global value chains (GVC) and subsequently to upgrade into higher valueadded activities, largely being determined by the structure of their innovation systems (IS). Therefore, an attempt is made to examine the relationship between participation in Global value chains (GVC) and Innovation Systems (IS) of different developed, Asian and developing countries depicting different stages of development. For the purpose, seemingly unrelated regression equation model is estimated for the manufacturing industries and it was found that in the initial stages of development, low-skilled labour, mediumskilled labour, process innovation and price level have significant impact on participation in global value chains (GVC) followed by the role of skilled labour and innovations in the advanced stages of development. It was also found that for building innovation systems (IS), the role of high-skilled labour predominates in the initial stages. However, in the later stages, participation in GVC with backward linkages also has a positive impact on building their innovation valuesystems (IS). Specifically for South Korea with proximity in hightechnology intensive industries, the impact of high skilled labour, product and process innovation are significant in determining global value chain participation while the high-skilled labour and backward linkages played important role for building its innovation systems (IS). For India’s low-technology intensive industries, low skilled labour and price level have significant impact on its participation in global value chains whereas human capital have positive impact on its innovation systems (IS).

Keywords: Global value chains, Innovation systems


This work is supported by Korean Foundation for Advanced Studies/ Chey Institute for Advanced Studies' International Scholars Exchange Fellowship during the period from March 2019 to August 2019. My gratitude is for Prof. Keun Lee for the comments on the earlier draft of the paper. I am thankful to the administration office and the library of Institute of Economic Research, Seoul National University, Seoul, South Korea for the support. The suggestions and comments of two referees are thankfully acknowledged that helped in improving this paper.

1. Almeida, Paul, and Bruce Kogut. “The exploration of technological diversity and geographic localization in innovation: Start-up firms in the semiconductor industry.” Small Business Economics 9 (No. 1 1997): 21-31.
2. Arndt, Sven W., and Henryk Kierzkowski, eds. Fragmentation: New production patterns in the world economy. OUP Oxford, 2001.
3. Asheim, Bjørn T., and Meric S. Gertler. “The geography of innovation: regional innovation systems.” In The Oxford handbook of innovation, New York: Oxford, 2005.
4. Bair, Jennifer. “Global capitalism and commodity chains: looking back, going forward.” Competition & Change 9 (No. 2 2005): 153-180.
5. Baltagi, B. H. Econometric Analysis of Panel Data. Sussex: John Wiley and Sons, Ltd., 2005.
6. Bathelt, Harald, Anders Malmberg, and Peter Maskell. “Clusters and knowledge: local buzz, global pipelines and the process of knowledge creation.” Progress in human geography 28 (No. 1 2004): 31-56.
7. Borrus, M. D. Ernst and S. Haggard, eds. International Production networks in Asia: Rivalry or Riches. Routledge Publications: London, 2000.
8. Carlsson, B., eds. Technological Systems and Economic Performance: The case of Factory Automation. Dordrecht: Kluwer, 1995.
9. Castillo, J. C and A. Szirmai. Mexican manufacturing and its integration into global value chains. United Nations University-Maastricht Economic and Social Research Institute on Innovation and Technology: Masstricht, 2016.
10. Cattaneo, O, Gereffi, G and C. Staritz. Global value chains in a postcrisis world: a development perspective. World Bank Publications, 2010.
11. Coe, D.T and E. Helpman. International R&D Spillovers, European Economic Review 39 (No. 5 1995): 859-887.
12. Cohen, W. M. and Levinthal, D. A. Innovation and Learning: The Two Faces of R&D. The Economic Journal 99 (No. 397 1989): 569-596.
13. Cooke, P., M. Gomez Uranga and G. Etxebarria. Regional systems of innovation: Institutional and Organisational dimensions. Research Policy 26 (Nos. 4-5 1997): 475-491.
14. Edquist, E. Systems of Innovation: Perspectives and Challenges. In Fagerberg, J. D. Mowery and R.R. Nelson, eds. The Oxford Handbook of Innovation. Oxford: London, 2005.
15. Ernst, D. Global Production Networks and the Changing geography of Innovation Systems. Implications for Developing Countries. Economics of Innovation and New Technology 11 (No. 6 2002): 497-523.
16. Ernst, D. Catching-up, crisis and industrial upgrading: Evolutionary aspects of technological learning in Korea’s electronics industry. Asia Pacific Journal of Management 15 (No. 2 1998): 247-283.
17. Escaith, Hubert, and Hadrien Gaudin. Clustering value-added trade: Structural and policy dimensions. WTO Staff working paper ERSD 2014-08. World Trade Organization Economic Research and Statistics Division, Geneva, 2014.
18. Fagerberg, J. D. Mowery and R.R. Nelson, eds. The Oxford Handbook of Innovation. New York: Oxford, 2005a.
19. Fagerberg, J. Innovation: A Guide to the literature. In Fagerberg, J. Mowery, D.C and R.R. Nelson, eds. The Oxford Handbook of Innovation. New York: Oxford, 2005b.
20. Freeman, C. Technology Policy and Economic Performance: lessons from Japan. Pinter: London, 1987.
21. Fagerberg, J., B.A. Lundvall, and M. Srholec. “Global value chains, National innovation systems and Economic Development.” The European Journal of Development Research 30 (No. 3 2018): 533-556.
22. Freeman, C. Technology Policy and Economic Performance: Lessons from Japan. London: Pinter, 1987.
23. Gereffi, G and K. Fernandez- Stark. Global value chain analysis: A primer. Center on Global ization, Governance and Competitiveness. Duke University, North Carolina, 2011.
24. Gereffi, G. “The Organization of Buyer-Driven Global Commodity Chains: How U. S. Retailers Shape Overseas Production Networks.” Contributions in economics and economic history (1994): 95-95.
25. Gereffi, G., J. Humphrey and T. Sturgeon. “The governance of global value chains.” Review of International Political Economy 12 (No. 1 2005): 78-104.
26. Grossman, G.M and E. Rossi-Hansberg. “Trading Tasks: A Simple theory of offshoring.” American Economic Review 98 (No. 5 2008): 1978-97.
27. Grossman. G.M and E. Helpman. “Endogenous Growth trade, Knowledge Spillovers and Growth.” European Economic Review 35 (Nos. 2-3 1991): 517-526.
28. Hall, B. H. Innovation and Diffusion. In Fagerberg, J., D.C. Mowery and R.R. Nelson, eds. The Oxford Handbook of Innovation. Oxford University Press, 2005.
29. Henderson, J., P. Dicken, M. Hess, N. Coe and H. W-C Yeung. “Global Production Networks and the Analysis of Economic Development.” Review of International Political Economy 9 (No. 3 2002): 436-464.
30. Hess, M and H.W. Yeung. “Wither global production networks in economic geography? Past, present and future.” Environment and Planning, guest editorial 38 (2006): 1193-1204.
31. Hobday, M. “East Asian Latecomer Firms: Learning the Technology of Electronics.” World Development 23 (No. 7 1995): 1171-1193.
32. Hobday, M. “Latecomer catch-up strategies in electronics: Samsung of Korea and ACER of Taiwan.” Asia Pacific Business Review 4 (Nos. 2-3 1998): 48-83.
33. Hopkins, T.K.,and I. Wallerstein. “Patterns of Development of the Modern World-System.” Review (Fernand Braudel Center) (1977): 111-145.
34. Howells, J.R.L. “Tacit Knowledge, Innovation and Economic Geography.” Urban Studies 39 (Nos. 5-6 2002): 871-884.
35. Hummels, D., Ishii J and K-M Yi. “The Nature and Growth of Vertical Specialization in World Trade.” Journal of International Economics 54 (No. 1 2001): 75-96.
36. Iizuka, Michiko, and Hugo Hollanders. The need to customise innovation indicators in developing countries. UNU-MERIT Working Paper Series. The Netherlands: Maastricht University, 2017.
37. Jaffe, Adam B., Manuel Trajtenberg, and Rebecca Henderson. “Geographic localization of knowledge spillovers as evidenced by patent citations.” the Quarterly journal of Economics 108 (No. 3 1993): 577-598.
38. Jaffe, A. B. “The Real effects of Academic Research.” American Economic Review 79 (1989): 957-970.
39. Jouanjean, M-A., J. Gourdon and J. Korinek. GVC participation and economic transformation: Lessons from three sectors. OECD Trade Policy Paper No. 207. OECD Publishing, Paris, 2017.
40. Jurowetzki, R. R. Lema and B. A. Lundvall. “Combining Innovation systems and Global Value Chains for development: Towards a research agenda.” The European Journal of Development Research 30 (No. 3 2018): 364-388.
41. Kaplinsky R. “Globalisation and unequalisation: what can be learned from value chain analysis?” Journal of Development Studies 37 (No. 2 2000): 117-46.
42. Kaplinsky, R. and M. Morris. A Handbook for value chain Research, IDRC. International Development Research Centre, Ottawa, 2002.
43. Keller, W. “International Technology Diffusion.” Journal of Economic Literature 42 (No. 3 2004) 752-782.
44. Keijser, C and M. Iizuka. “Looking Beyond Global Value Chains in capacity development: The case of IT-enabled services (ITES) sector in South Africa.” The European Journal of Development Research 30 (No. 3 2018): 442-461.
45. Koopman, R., W. Powers, Z. Wang and S.J. Wei. Give credit where credit is due: Tracing value added in global production chains. No. w16426. National Bureau of Economic Research, 2010.
46. Lall, S. Competitiveness, Technology and Skills. Edward Elgar Publishing, Cheltenham, 2001.
47. Leamer, E.E. The Heckscher-Ohlin Model in theory and practice. Princeton Studies in International Finance No 77, 1995.
48. Lee, K. and J. A. Mathews. South Korea and Taiwan. In Amann. E and J. Cantwell, eds. Innovative Firms in Emerging Market Countries. Oxford University Press, Oxford, 2012.
49. Lee, K. Schumpeterian Analysis of Economic Catch-Up: Knowledge, Path Creation, and the Middle-Income Trap. Cambridge University Press, 2013.
50. Lee, K. and C. Lim. “Technological Regimes, Catching-up and Leapfrogging: Findings from the Korean Industries.” Research Policy 30 (No. 3 2001): 459-483.
51. Lee, K., M. Szapiro and Z. Mao. “Global Value Chains (GVC) to Innovation Systems for Local Value Chains and Knowledge Creation.” The European Journal of Development Research 30 (No. 3 2018): 434-441.
52. Lundvall, B. A., eds. National Systems of Innovation: Towards a Theory of Innovation and Interactive learning, Pinter: London, 1992.
53. Malerba, F. Sectoral Systems: How and Why Innovation Differs across Sectors. In Fagerberg, J., D.C. Mowery and R.R. Nelson, eds. The Oxford Handbook of Innovation. Oxford University Press, 2005.
54. Marchi, V.D., E. Giuliani and R. Rabellotti. “Do Global Value Chains offer Developing Countries Learning and Innovation Opportunity?” The European Journal of Development Research 30 (No. 3 2018): 389-407.
55. Mehta, S. “Tilting towards South’: Pattern and determinants of global value chains.” Seoul Journal of Economics 31 (No. 1 2018): 63-97.
56. Nelson, R., eds. National Innovation Systems: A Comparative Analysis. Oxford University Press, New York, 1993.
57. Organisation For Economic Co-Operation and Development (OECD). “ISIC Rev. 3 Technology Intensity Definition.” OECD Directorate for Science, Technology and Industry, Economic Analysis and Statistics Division, 2011.
58. Pietrobelli, Carlo, and Fernanda Puppato. “Technology foresight and industrial strategy.” Technological Forecasting and Social Change 110 (2015): 117-125.
59. Pietrobelli, C. and R. Rabellotti. The global dimension of innovation systems- Linking innovation systems and global value chains. In Lundvall, B.A., Joseph, K.J and J. Vang, eds. Handbook on Innovation Systems and Developing Countries – Building domestic capabilities in a global setting, Edward Elgar, 2009.
60. Pietrobelli, C. and R. Rabellotti. “Global value chains meet Innovation systems: Are there learning opportunities for Developing countries.” World Development 39 (No. 7 2011): 1261-1269.
61. Pietrobelli, C. and C. Staritz. “Upgrading, Interactive Learning, and Innovation Systems in Value chain interventions.” The European Journal of Development Research 30 (No. 3 2018): 557-574.
62. Porter, M. E. The Competitive Advantage of Nations. The Free Press, New York, 1990.
63. Prete, D.D, G. Giovannetti and E. Marvasi. “Global value chains: New evidence from North Africa.” International Economics 153 (2018): 42-54.
64. Raikes, P., M.F. Jensen and S. Ponte. “Global commodity chain analysis and the French filiere approach: comparison and critique.” Economy and Society 29 (No. 3 2000), 390-417.
65. Ricardo, D. On Principles of Political Economy and Taxation, 1817.
66. Romer, P. “Endogenous technological change.” Journal of Political Economy 98 (No. 5 1990) S71-S102.
67. Sampath, P. G., and B. Vallejo. “Trade, Global Value Chains and Upgrading: What, Where and How?” The European Journal of Development Research 30 (No. 3 2018): 481-504.
68. Selwyn, B. “Social Upgrading and Labour in Global Production Networks: A Critique and an alternative conception.” Competition and Change 17 (No. 1 2013): 75-90.
69. Smith, A. An Inquiry into the Nature and Causes of the Wealth of Nations. London, 1776.
70. Smith, K H. Measuring Innovation. In Fagerberg.J, M.C. Mowery and R.R. Nelson, eds. The Oxford Handbook of Innovation. New York: Oxford, 2005.
71. Tajoli, L. and G. Felice. “Global value chain participation and knowledge spillovers in developed and developing countries: An empirical investigation.” The European Journal of Development Research 30 (No. 3 2018): 505-532.
72. Wang, Z. Wei, S-J, Yu, X and K. Zhu. Measures of Participation in Global Value Chains and Global Business Cycles, Cambridge, M.A. National Bureau of Economic Research, 2017.