Economic upgrading in global value chains: The Brazilian automotive and aeronautical industries

• GVC integration requires technological dynamism for upgrading. • Brazilian automotive and aeronautical sectors show opposite patterns of technological upgrading. • Embraer has enabled a high value-added integration of the Brazilian aeronautical sector into GVCs. • Growing trade deficits and lack of R&D expenditures in comparison to world average have marked a subordinated integration of the Brazilian automotive sector. • Challenges for GVC integration amid disruptive innovations are bigger in the absence of domestic innovators. Based on the literature on Global Value Chains (GVC), this paper examines the Brazilian automotive and aeronautical industries during a period of strong international integration with the purpose of evaluating the different patterns followed by each sector. The analysis considers production, trade and technological dynamics, pointing out that economic upgrading requires investments and innovation. While both industries have benefited from an expansionary cycle over the 2000s, the Brazilian aeronautical sector – led by the national company Embraer – has presented a more active GVC integration with trade surpluses and higher technological expenditures in comparison to the sector’s world average. The automotive sector, in turn, has presented a more subordinated integration with enlarging trade deficits after the global financial crisis and relatively lower technological dynamism, posing further challenges in terms of GVC upgrading amid big technological changes coming from the new industrial revolution.