The Effect of Global Value Chains on Employment in China’s Manufacturing Sector

What is the impact of Global Value Chains on manufacturing sector jobs in China? The 21st century has been characterized largely by the adoption of trade-led development strategies. The gains of globalization and trade openness are gradually phasing out rigid protectionism. Today, capital can be invested anywhere, using labor and raw materials outsourced from anywhere, and the product be marketed anywhere as long as that ‘anywhere’ has economic value. As a result of the growing economic integration across the globe, it has become common practice for countries to export or import intermediate products for advanced processing. The increasing diffusion of technology and labor mobility has further given international trade the new dimension of joint production. Recent research shows that the fragmentation in production processes has been facilitated by the continued decline of transport costs and the emerging web of value addition processes (Timmer et al, 2015). Global Value Chains have thus become the center piece of production and trade policy. Today, imports are not merely finished products or consumables; they form a key part of domestic production in the importing state.

Global Value Chains (GVCs) are conceptually not a new phenomenon. Yet it’s only recently that scholars have started paying attention to the impact global value chains have on employment. The creation of a new world input-output database (WIOD) and its public inception in 2012 enabled the analysis of country participation in GVCs. The database is yet to include developing countries. As a result of it being relatively recent, there has not been much focus on the subject area in general. Consequently, there are very few country studies on the effect of GVCs on employment patterns.

Recent research work presents mixed findings on how foreign value added in production impacts on employment. In India, Banga (2015) finds that the domestic value added in exports had no statistically significant impact on imports. He also surprisingly finds that Foreign Value Added in exports has negative impact on growth of employment. His conclusion is that GVCs had a negative net effect on employment in India. Timmer, Los and Vries (2015) used the global input-output methodology to analyze the effect of foreign demand on employment in China for the years between 1995 and 2001. They also found that increase on foreign demand had no effect on employment. For the years between 2001 and 2006, they find that foreign demand had led to an increase in jobs.

The creation of WIOD database presents an opportunity to pursue this subject further. This proposed analysis differs with the study conducted by Timmer et al in two ways. One, the study restrains the analysis to capture impact of GVC participation on employment in the manufacturing sector. Secondly, the study uses more comprehensive data from WIOD for the years between 2000 and 2014. The increase in sample observations is likely to impact on the findings.

Theory: Global Value Chain theory

Model TEi = ?0 + ?1 FoVAi + ?2 Tariffi + ?3GVAi + ?4LCompi+ dManfi +U Data Source1: WIOD Socio-Economic Accounts LComp- Labor Compensation (Wage) GVA- Gross Value Added TE-Total Persons Engaged (Employment) FoVA-Foreign Value Added (GVC MEASURE) Data Source2: WBG - WITS, UNCTADTRAINS, World Trade Organization Tariffs- Weighed annual average tariff values

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