Determinants of Participation in Global Value Chains: The Case of Türkiye

The aim of this paper is to identify the determinants of Türkiye’s participation in Global Value Chains (GVCs) by using data for 34 manufacturing, mining, and service sectors over the period 2006 to 2020. To achieve this, Augmented Mean Group (AMG), System Generalized Method of Moments (System GMM), and Fixed Effects (FE) methods are employed in the estimations. Our estimation results indicate that Foreign Direct Investment (FDI) is one of the key determinants that enhances Türkiye’s backward, forward, and total GVCs participation. An increase in the tariff rate reduces Türkiye’s integration into GVCs by decreasing backward as well as total participation. On the other hand, an increase in labor costs in Türkiye leads to a rise in backward GVC participation while having a detrimental effect on both forward and total participation. Our estimation results also suggest that backward GVC participation is particularly prominent in capital-intensive sectors. On the other hand, although the importance of sectoral real exchange rates and skilled and unskilled labor varies across different indicators of GVC integration, these variables are not the primary determinants for Türkiye’s total participation in GVCs.