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Human Capital Expansion and Global Value Chain Upgrading: Firm‐level Evidence from China

Firms actively participate in the production of the global value chain (GVC), which is an important driving force for economic development. Using a difference‐in‐difference method, our research shows that industries that are relatively more human‐capital intensive experienced a larger GVC position upgrading after 2003 than they had in prior years. Second, mechanism analysis shows that human capital expansion increases firms’ GVC position not only through an imported intermediate input effect but also through an innovation effect. Third, this study shows that increases in the college‐educated labor force have a heterogeneous effect on a firm's GVC position across firms’ various characteristics. Human capital expansion has the largest positive effect on state‐owned firms relative to foreign and domestic private firms. Human capital expansion has also significantly improved the GVC position of firms located in China's eastern and central regions. The findings of this study indicate that it helps upgrading the GVC position of Chinese firms.