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Comments on “GVC Participation and Firm’s

Innovation:Evidence from SMEs in Vietnam”

by Duc Anh Dang & Vuong Anh Dang

Discussant: Ha Thi Thanh Doan, ERIA

ADBI Workshop on Trade, GVC and SMEs

Tokyo, February 6-7 2020
Summary (1)
• This paper examines the relationship between GVC
participation and firm innovation in the case of
Vietnam.
• The paper utilizes Vietnamese SMEs survey covering
2007-2015 period (biannual) and OECD’s TiVA
database.
• GVC participation is measured as foreign value added in
exports (FVA- backward linkages) for 16 manufacturing
industries
• Innovation includes product innovation (introduction of
new products vs improvement of existing products) and
process innovation (application of new tech)
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Summary (2)
• Key findings:
• Positive correlation between product improvement and
FVA
• Negative correlation between new product introduction
and FVA
• Results are more significant for micro-firms

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Comment (1): Conceptual framework
vs empirical measurement
• Conceptual framework
• (i) Quality upgrading and knowledge spillover thanks to
linkages with MNEs through local affiliates
• (ii) Competition pressure from MNEs
• (iii) Access to more input varieties

• Empirics: FVA- imported intermediates

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Comment (2): Innovation statistics

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Comment (3): Measuring GVC
participation
• FVA at industry level

• Highly aggregated (16 manufacturing industries) 

masks significant firm-level heterogeneity
• One would expect limited firm’s level GVC participation
for SMEs, particularly micro firms
• Industry-level FVA statistics may reflect participation by
MNEs and large domestic firms rather than SMEs

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Comment (4): IV
• Potential bias due to aggregration?
• Overidentification test?

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Comments (5): Results
• Impact is more pronounced for micro firms: as
mentioned earlier, there’s low probability of micro
firms participating in GVC.
• Results may be driven by other factors not presented in
the model

• Negative and significant relationship between GVC

participation and introduction of new products
• Goldberg et al. (2010, QJE) find that better access to
imported intermediate encourages firms to develop new
products
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Comments (6): Policy implications
• Impact of GVC participation on process innovation
(new tech) is not significant. Yet the authors
recommend “policies to incentivize SMEs to
demand better technology; improving the
innovation system […] to transfer new technology”.

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Recommendations
• Consider more relevant variables
• Innovation: estimate product quality (Khandewal, 2010,
RES)
• GVC participation: utilize firm-level information
(backward linkages: imported intermediates, exports,
output, forward linkages: whether/how much firm
supplies inputs to MNEs.)
• Robustness check
• More extensive literature review

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