Global Value Chains and Employment: A Firm-Level Analysis of the Indian Manufacturing Sector

This study aims to understand the relationship between Global Value Chains (GVC) and firm-level employment in the Indian Manufacturing Sector. We analyzed rich panel-level data of 2293 firms from 2009 to 2023 by employing the system generalized method of moments (GMM) estimator to address dynamic panel bias and potential endogeneity. Our empirical strategy isolates two different dimensions of GVC integration: the transition of a domestic firm into a GVC firm and the depth of continuous integration into GVCs. The conditional as well as unconditional labor-demand estimates indicate that both GVC entry and the depth of GVC embeddedness are associated positively with employment. While industry/sector-level empirical studies reported mixed results regarding GVC involvement and employment in India, our analysis is the first to examine both extensive and intensive margins of GVC integration at the firm level. Our results highlight the relevance of GVC integration for employment growth and suggest targeted policies for reducing the frictions in the internationalization of firms.