How do countries benefit from participating in the global value chain? A comprehensive panel analysis of heterogeneity in GVC impacts

Global trade has shifted from the traditional exchange of finished goods to the widespread integration of global value chains (GVCs). The expansion of GVCs has important implications for both developed and developing economies. We construct a framework to explain how GVC participation affects GDP per capita and how these effects differ across countries at different income levels by analysing types of GVC activities and the mediating role of total factor productivity (TFP). We use advanced econometric methods, including fixed-effects models, two-stage least squares estimators, system generalized method of moments estimators, and fixed-effects quantile regression, to provide detailed insights into the differential effects of GVC participation. Our results show that the impact of GVC participation on economic growth varies by income level. For low-income countries, backward GVC participation significantly affects GDP per capita, while forward GVC participation has significant effects only for upper-middle- and high-income countries. We also find that TFP mediates the impact of GVC participation on GDP per capita.