Vertical Spillovers in Global Value Chains

This paper uses input-output relationships across highly disaggregated products to establish two empirical regularities with bilateral trade data. First, countries are likely to have revealed comparative advantage (RCA) in a product if they also have RCA in products that are upstream or downstream to that product. Second, the RCA of a product improves over time if the country experiences export demand shocks to its inputs or outputs. This suggests that being integrated as suppliers into the global production network can benefit countries by improving their capabilities across different stages of production.