Impact of institution quality on China’s evolution in global value chain

DAI Xiang1 ZHENG Lan2

(1.School of Economics and Trade, Nanjing Audit University)
(2.Nanjing Audit University Library)

【Abstract】Much research on how to escalate to a higher end of the global value chain (GVC) focuses on the impacts of improving local factors quality, cultivating advanced factors and developing advanced producer-service industry. This article argues that compared with traditional labor division divided by final products, in the GVC characterized by “added value” institution quality is much more important especially in determining comparative advantages, and the higher end of GVC is particularly more sensitive to institution quality. From the point of labor division evolution, this article presents a theoretical analysis on the micro mechanism of institution quality impact on GVC, on the basis of which an empirically statistical analysis using OLS, TSLS and systematic GMM methods is further conducted based on regional static and dynamic panel data of China between 1993 and 2010. The ensued econometrical test results are a strong support for the theoretical conclusion that institution quality significantly and positively affects China' s position on GVC. In addition, econometrical results also suggest that other factors including openness, human capital, organic composition of capital, infrastructure and FDI, all are positively correlated with China's evolution in GVC. Based on this, improvements in institution quality in accordance with requirements of open economy in the process of further opening-up help to accelerate China's evolution in GVC.

【Keywords】 institution quality; global value chain; evolution of labor division; transaction cost;


【Funds】 Project of National Social Science Foundation of China (15BJY119) Key Project of Studies of Philosophy and Social Science of Colleges and Universities of Jiangsu Province (2015ZDIXM022)

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(Translated by YI Ran)


    [1]. ①Considering data continuity and their shares in global trade, when calculating value of TSI, we sample 46 countries and regions, including the US, China, Hong Kong, China, Japan, Germany, Republic of Korea, the Netherlands, Singapore, India, the UK, France, Malaysia, Australia, Italy, Brazil, Mexico, Canada, Indonesia, Thailand, Russia, Spain, Turkey, Hungary, Iran, the Czech Republic, Poland, the Philippines, Belgium, Finland, Egypt, Pakistan, Sweden, Denmark, Greece, Argentina, Chile, Switzerland, Ireland, Portugal, Austria, New Zealand, Israel, Colombia, Sri Lanka, Ukraine and Venezuela. [^Back]

    [2]. ②Integrated Risk Index released by ICRG is based on weighted calculation of 22 quantitative indicators under three broad categories, including political risk, financial risk and economic risk. It can reflect the quality of a country's external institution quality in general. The higher the index is, the more perfect the external quality system will be, and vice versa. In this index, the risk score ranging between 0 and 49.5 means great risk or poor external system, and the score ranging between 80 and 100 means minimal risk and excellent external institutional quality. [^Back]


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This Article


CN: 11-1692/F

Vol , No. 12, Pages 51-63+132

December 2015


Article Outline


  • Introduction
  • 1 Literature review
  • 2 Influencing mechanism of institutional quality on global value chain
  • 3 Notes on variables, models and data
  • 4 Statistical results and analysis
  • 5 Conclusion and suggestions
  • Footnote