The Role of Innovation in Upgrading in Global Value Chains

ABSTRACT We examine the role of innovative efforts in industries from the perspective of global value chains (GVCs). We set up a simple model and empirically test it using patent and bilateral export decomposition data. The model shows that innovative activities assumed to decrease the cost of conducting high-skilled tasks can upgrade the position of the industry in GVCs. This is also supported by data on patents and GVC-related data from the OECD and the Asian Development Bank. The empirical results reveal that a higher number of patent applications are closely related to more production of intermediate goods rather than assembly.