Abstract

This paper investigates the effects of human capital on bilateral domestic value-added trade in global value chains (GVCs) for 43 countries and 56 sectors. In contrast to previous studies, this paper estimated an approximate gravity model of value-added trade to capture the role of human capital in determining the cross-border production linkages via value-added trade. The results show that the domestic value-added trade flows depend critically on human capital development in both exporting and importing countries. The results indicate a positive effect of skilled intensity on bilateral domestic value-added trade in GVCs. We also observe a larger positive effect of skills on the GVC value-added trade for the developing economies. The paper highlights the importance of trade liberalization and forward-looking human capital development policies for the competitiveness of the developing countries in the value-added trade in GVC.

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