Foreign multinational global value chain participation and domestic innovation: Viewing GVCs inside-out and outside-in

Abstract

Two questions persist regarding global value chains (GVCs): First, what are the strategies and pathways through which multinational enterprises (MNEs) integrate and navigate GVCs? Second, what are the characteristics of GVCs in which MNEs participate? An analysis of these questions leads to inside–out and outside–in perspectives on GVCs. The literature on MNEs mostly focuses on the quantity and quality of foreign direct investment rather than on the differences in MNEs’ production activities and structure of GVCs. This study examines the effects of MNEs’ participation in simple and complex GVCs on domestic innovation. We find that the positive effects are mainly driven by MNEs’ downstream participation in simple GVCs. The mechanism tests indicate that MNEs’ upstreamness within simple GVCs negatively affects domestic firms’ absorption capacity and internal R&D and that within simple and complex GVCs negatively affects domestic firms’ export resilience.