Import competition and sustainable development of global value chains: Evidence from China

Abstract As the largest developing country and the second largest importer, China provides meaningful research on import competition and the global value chain (GVC). This article uses theoretical models and empirical tests to explore whether and how import competition affects the sustainable development of Chinese firms' GVCs. Moreover, we utilize China's entry into the WTO as a quasi‐natural experiment for import competition to further test the robustness of our findings. Ultimately, we find that import competition reduces the sustainable development of GVCs by decreasing the quality of imported intermediate inputs, which inhibits technology spillover, and by increasing the substitution of foreign inputs for domestic materials. Heterogeneous analyses show that import competition negatively affects ordinary trade and mixed trade firms while having no significant impact on processing trade firms. Moreover, this negative effect is especially significant for firms in eastern and central regions.