Does vertical specialisation increase productivity?

This paper investigates the impact of global value chain (GVC) participation on productivity. It uses data on trade in value‐added from the World Input‐Output Database. The results based on a panel estimation covering 13 sectors in 40 countries over 15 years suggest that participation in GVCs is a significant driver of labour productivity. Backward participation in GVCs, that is, the use of imported inputs to produce for exports, emerges as particularly important. An increase by 10% in the level of GVC participation increased average productivity by close to 1.6%.