Innovating From Global Value Chains: Forward and Backward Linkage Portfolios and Innovation Performance

ABSTRACT Based on the integration of theories of global value chains (GVC), national innovation systems (NIS), and firms' knowledge search, this paper seeks to explore how a country's GVC forward and backward linkage portfolios affect its innovation performance. The empirical results confirm the hypotheses that a country's forward‐linking market concentration has a negative linear effect, while its backward‐linking market concentration has a positive linear effect on innovation performance. However, contrary to what theoretical hypotheses predict, a country's forward‐linking product concentration has a positive linear effect on innovation performance, while backward‐linking product concentration has a U‐shaped curvilinear effect on innovation performance. The major contribution of this paper is to highlight the importance of a country's external linkage as leverage to trigger more global knowledge transfer and learning effects, and ultimately to produce more homegrown innovations.