Global Value Chain Spillovers and Economic Growth of SAARC Countries under the BRI Perspective

Abstract

This study revisits the relationship between trade and growth, emphasizing the functions of the global value chain (GVC). This is a pioneer study to empirically evaluate the impact of GVC trade on the economic growth of the South Asian Association for Regional Cooperation (SAARC) nations from the perspective of the Belt and Road Initiative (BRI). The objective of this article is to analyze the potential contribution of BRI in the development of these countries backward, forward and sectoral-level GVC participation. We employed second-generation econometric techniques for this empirical analysis over the period 1990–2022. To ensure the robustness of the results of cross-sectional autoregressive distributed lag (CS-ARDL), we used the augmented mean group (AMG) and common correlated effects mean group (CCEMG) models. The results indicate that forward and backward GVC involvement increases economic growth for SAARC countries. On the contrary, due to improper implementation of domestic policies, economic environment and inadequate absorptive capacity, GVC participation comes with a negative impact on the economic growth of the sample countries. The sectoral GVC trade in manufacturing industries is linked to a favourable impact on growth, while sectoral GVC trade-in service shows a negative association with gross domestic product (GDP). The results of our analysis demonstrate that GVCs are a driver of economic growth. Countries can unlock potential gains by implementing policies that promote participation in GVCs and by strengthening domestic fundamentals through regional collaborations within the BRI.