Does engagement in global value chains enhance innovation: new micro evidence from Vietnam

Purpose Innovation is widely considered a key driver of socioeconomic development. Despite ongoing efforts to enhance innovation, Vietnam continues to face challenges that hinder its innovation capacity. This study aims to investigate the effects of global value chain (GVC) participation on the innovation of Vietnamese firms during 2005–2023. Design/methodology/approach Using firm-level data from the World Bank’s Enterprise Survey over the period 2005–2023, the authors apply a probit model to quantify the effects of GVC engagement on firm innovation. To address potential endogeneity concerns, the authors use an instrument variable approach for estimation. Findings The findings show that firms participating in GVCs are more likely to introduce new products and new processes compared with non-GVC firms, with profound effects observed for small and medium firms. Factors such as firm age, credit line, official employee training program and informal competition also contribute positively to innovation, whereas higher production capacity appears to reduce the likelihood of introducing new products and processes. Originality/value This study contributes to the existing literature on the relationship between GVC participation and firm-level innovation. Based on these findings, several policy implications are proposed to support firms in participating in GVCs and promoting their innovative activities. In addition, the study provides broader insights by analyzing a diverse range of firms, thereby capturing potential heterogeneity in innovation activities related to firm size and ownership structure.