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Abstract

Global Value Chains (GVCs) have become a central topic in trade and development policy but little is known about their actual impact on economic performance. Using a new unique set of Inter-Country Input-Output tables with extensive country coverage, I show that an increase in GVC participation leads to higher domestic value added and productivity for all countries independent of their income levels. Causality is established by building a novel value added trade resistance index that combines third country trade costs with industry-specific technological variables leading to an exogenous variation in GVC participation. Based on the preferred IV specification, I find that a 1 percent increase in backward GVC participation leads to 0.11% higher domestic value added in the average industry. Equally, I find for forward linkages that a 1 percent increase in GVC participation leads to 0.60% higher domestic value added and to 0.33% higher labour productivity.

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