How GVC Embeddedness Affects Firms’ Innovation Level: Evidence from Chinese Listed Companies

Abstract This study uses a sample of Chinese listed companies from 2007 to 2016 to examine the impact and mechanisms of firms’ integration into global value chains (GVCs) on their innovation levels. The results show that as firms deepen their GVC participation, their innovation levels follow a U-shaped trend. This effect is only observed in the upstream of the supply chain, while downstream participation negatively affects firms’ innovation levels. Heterogeneity analysis indicates that this U-shaped effect is most prominent in state-owned enterprises and technology-intensive industries, but does not exist in foreign-invested enterprises. Moreover, digitalization and marketization are mechanisms through which GVC participation influences firms’ innovation levels, with marketization having a more pronounced impact.