The Impact of Global Value Chain Reconstruction on Innovation: Evidence from Chinese Manufacturing Firms

Abstract Based on the trends presented by China's participation in the global value chain (GVC) division of labor, this paper proposes to measure the reconstruction of the GVC from two perspectives: location reconstruction and transfer reconstruction. Through theoretical analysis, it elucidates the issue of how emerging economies represented by China drive innovation through role transformation in the process of participating in the GVC division of labor. Empirical tests are conducted using Chinese firm-level data from 2000 to 2013, and the results indicate that both location reconstruction towards high-tech segments and transfer reconstruction towards non-G7 economies have a promoting effect on firm innovation for emerging market economies. In this process, an increase in import downstreamness promotes firm innovation through technology spillover effect and absorptive capacity effect, however, spillover effect increase is also accompanied by "low-end lock-in" in processing trade firms and foreign-invested firms. Furthermore, the decrease in the share of intermediate products imported from G7 countries promotes firm innovation through the expansion of exports, especially the exports of intermediate products to non-G7 economies, which reflecting the transfer of value chains to some extent. JEL: F13;F14;O31