Trade balances and global value chains: Is there a link?

This paper assesses whether and how the participation to Global Value Chains (GVCs) contributes to trade imbalances. We test empirically the relationship between GVCs participation and a country's net export for 42 countries in the period 20 0 0-2014, using the World Input -Output Database (WIOD) on interna-tional production linkages. We find that trade balance is positively associated with countries' involvement in GVCs, but the trade balance worsens the higher the offshoring to lower-income countries, while it im-proves the higher the offshoring to higher-income countries. This asymmetry suggests that when coun-tries offshore to higher-income partners the gains in competitiveness overcome the potentially negative effect of larger imports of intermediate inputs. (c) 2021 Elsevier B.V. All rights reserved.