Export Diversification, Quality and Global Value Chain: A Cross-country Analysis

This paper critically examines the impact of countries' participation and positions in Global Value Chains (GVCs) on their export diversification and quality for 43 G20 and OECD countries over the period 1990-2015. GMM dynamic panel estimation reveals that deeper GVC integration significantly influences export structures, with countries positioned downstream in the value chain exhibiting more diversified exports (overall and at the intensive margin) but have concentrated exports at the extensive margin and geographically. Conversely, upstream, more factor-based GVC activities tend to result in less diversified export portfolios. Greater GVC participation leads to a more diversified export product basket but more concentrated export destinations in terms of the Hirschman index. However, the association between export diversification and GVC participation varies across measures of diversification and country's level of economic development. We further find that countries and sectors having larger export share in downstream of the supply chain and have a lower extent of GVC participation, export quality differentiated product. These outcomes suggest that GVC participation and position play crucial roles in shaping national export strategies and economic resilience, with downstream activities offering pathways to enhanced export diversification and quality improvement. The study contributes to the understanding of how global production fragmentation impacts the complexity and sophistication of countries' export baskets. The outcomes provide guidance for policymakers to strategically leverage GVC engagement to foster export diversification, quality improvement and economic resilience.