Global value chain participation: a sub-national analysis of regional backward and forward linkages in China, Japan, and South Korea

Abstract

This study examines the determinants of GVC participation at the subnational level in Northeast Asia, focusing on both forward (producer) and backward (user) participation across twenty regions from 2005 to 2015. Utilizing Input-Output decomposition methods, regional and industrial GVC participation rates are quantified, followed by an analysis of the determinants using Bartik instrumental variable estimation. Results show half the regions shifted from forward to backward participation, highlighting the evolving dynamics of GVCs. Key determinants include: (1) R&D investment (significant for both types of participation); (2) port proximity and regional growth (backward participation); and (3) industrial structure and tariffs (forward participation). Regions are categorized into backward, forward, and transitioning-oriented, with six tailored strategies proposed: R&D and infrastructure for backward integration; industrial restructuring for forward integration; and combined R&D, restructuring, and tariff reforms for balanced growth. The findings highlight the need for region-specific policies to enhance GVC competitiveness.