Local demand and firms’ upgrading in global value chains: Evidence from China

AbstractWe investigate the impacts of local-demand quantity and quality on firms’ position in global value chains, using the microdata of Chinese enterprises from 2000 to 2014. The analysis finds that both the quantity and quality of local demand can significantly promote the position of enterprises in global value chains. The quantity of local demand affects firms’ upgrading in global value chains through economies of scale, economies of scope, and the technology spill-over effect. Enterprises with the advantages of differentiation, localization, internalization, and higher capital intensity are more capable of improving their positions in global value chains through the quality of local demand. Comparing across different stages, types, and standardized regression coefficients, we find that quality rather than the quantity of local demand is more conducive to firms’ upgrading in global value chains. Furthermore, the quantity and quality of local demand have a mutually reinforcing and complementary relationship in promoting firms’ upgrading in global value chains.KEYWORDS: Local demandfirms’ upgradingglobal value chainsSubject classification codes:: C33F61L10L20 Disclosure statementNo potential conflict of interest was reported by the author(s).Additional informationFundingThis work was supported by the National Social Science Fund of China [grant number 21AJL016] and Sichuan Soft Science Project [grant number 24RKX0434].