The Impact of Mineral Global Value Chains on Sectoral Value-Added Growth

While there is a burgeoning body of literature investigating the economic implications of participation in GVCs on growth and other key macroeconomic indicators, there remains a paucity of studies that specifically explore how natural resources interact within the context of GVCs in both developing and developed countries. This paper seeks to address the current gap by conducting an investigation into the impact of resource-based GVC participation, specifically for the industries of fuels and minerals, on the growth of value-added. Utilizing a unique dataset that spans the period from 1990 to 2016 and contains 133 countries, we employ the fixed effects method to capture unobserved individual heterogeneity. Our empirical findings reveal that, for our full sample, mineral (fuels) backward (forward) GVC participation has a positive and significant impact on the growth of the industry. Also, forward GVC participation exerts a favorable influence on value-added growth in the fuels and minerals sectors in developed countries. Finally, participating in minerals backward participation favors the mineral value-added growth in only developing countries.


Introduction
With the advent of advanced, cost-effective communication and transportation technologies, the concept of unbundling production stages and tasks across different regions has become increasingly viable and efficient.This transformation is driven by considerations of productivity [1].As a result, there has been a significant shift in the production process.At this time, many products are now designed, manufactured, and assembled at various locations by a multitude of firms participating in GVCs.
The evolution of GVCs has been instrumental in enhancing productivity through specialized tasks, cost-effective inputs, knowledge acquisition from international trade, economies of scale, and the diffusion of innovation [1].As a result, GVCs offer substantial benefits to both developing and developed nations.For instance, developed countries can reduce production costs by outsourcing specific tasks to developing nations while concentrating on core functions such as R&D, marketing and design.Similarly, developing nations could participate in GVCs by resource-based industries particular components without the need to produce intricate parts or complete products independently [2,3].
Considering these arguments, our study aims to address several questions.First and foremost, we seek to unravel the effects of resource-based forward and backward GVC participation on sectoral valueadded growth.It is imperative to understand how resource-centric industries fit into the broader GVC landscape and what implications this has for their contribution to value-added growth.Furthermore, we distinguish between different types of resource-based GVC participation, namely fuels and the minerals.These distinctions are pivotal, as they can shed light on whether the different type of resources produces This study seeks to enhance our understanding of the role of natural resources within the context GVCs.To achieve this, we employ a two-tiered approach.Firstly, we generate and apply an innovative dataset for GVC participation encompassing 133 countries and spanning the years 1990 to 2016.This dataset is derived from the EORA MRIOs, and we utilize the fixed effects model to address the individual heterogeneity with the focus of development level of countries1 .Secondly, recognizing the significance of distinguishing between forward and backward GVC participation, as emphasized in previous research [4], we delve into the impact of both directions of GVC participation on sectoral valueadded growth in fuels and minerals.While some prior studies have primarily focused on the overall measure of resource-based GVC participation [5], our investigation takes a more detailed approach.Specifically, we concentrate on unraveling the effects of various forms of resource-based GVC participation on the growth of value-added within resource-based industries.Our findings show that, across the full sample, joining in backward GVCs for minerals has a positive and significant impact on the value-added growth within the same industry.Furthermore, it is worth noting that developed nations witness advantageous outcomes in terms of value-added expansion in both the fuels and minerals sectors because of their active involvement in forward GVCs.Conversely, in the case of developing countries, it is specifically the backward participation in mineral GVCs that plays a significant role in contributing positively to value-added growth within the same industry.This paper is organized in the following manner: the next section examines the literature, the third section provides an elaboration of the model and the data, the fourth section presents and analyses the empirical findings, and the last section concludes.

Literature Review
The origins of global value chains can be traced back to several theoretical explanations such as production fragmentation [6,7] trade in intermediate goods [8,9], unbundling [10] and the trade in tasks [11].Joining GVCs is now easier due to new technologies, resulting in a rise in the proportion of intermediate inputs in global trade.In essence, production stages are divided across countries and firms.Hence, the core notion of global value chains is not only subject of movements of final products as the classical theory predicts, but also is related to cross-border trade and value-added contributions by the production stages.The existing body of literature offers numerous pathways through which GVCs can deliver substantial advantages.To illustrate these, [12] proposes that stronger integration into global value chains enhances productivity by stimulating competition and broadening market access [13].In line with these expectations, numerous studies have documented the beneficial or positive effects of GVC participation [14].
Concurrently, some studies have reported positive outcomes on income [15], productivity and regional growth [16] resulting from participation in resource-based GVCs.Several studies have also contended that resource-based global value chains foster sectoral growth through backward integration [17].In a recent study utilizing the OECD-MRIO database, [28] propose that countries specializing in natural resource industries promote high-tech manufacturing exports through backward linkages.
Similarly, [18] investigate the impact of agricultural GVCs using data from the EORA panel spanning from 1995 to 2015.Their findings indicate a positive relationship between agricultural GVC participation and agricultural value-added.
Furthermore, specific studies have delved into the role of value chains in household income and welfare.[15], for instance, employ cross-sectional data from over 400 farm households in Kenya and discover that households participating in supermarket supply chains enjoy higher income levels than their non-participating counterparts.Similarly, [19] examine the impact of participation in modern horticultural export supply chains on the income of smallholder farmers in Sub-Saharan Africa using the survey data.Their research indicates that participation in export supply chains can boost household income and alleviate poverty among smallholder farmers in these regions.Lastly, based on survey data from Madagascar, [20] find that farmers who supply to global retail chains tend to have higher incomes and are less likely to experience poverty compared to those who do not participate.
However, it would be misleading to assume that all these possible benefits automatically and immediately occur or realize/materialize once firms join GVCs regardless of their absorptive capacities [21].For example, [22] finds that Malaysia's success in upgrading its resource-based industries was a result of a combination of various factors, including state-led industrial policies, investment in human capital, institutional development, and strategic private sector partnerships.[5] find that innovation is critical for promoting the upgrading of mining value chains and emphasize the importance of linkages between mining firms and other industries to foster technological spillovers and knowledge exchange.
Not surprisingly, some studies cast doubts on the positive effects of global value chain participation.For example, [23] argue that global commodity chains are characterized by several power asymmetries, including unequal bargaining power between firms, weak regulatory frameworks, and limited opportunities for local firms and workers to capture economic value.They find that resource-rich countries often lack the capacity to regulate or negotiate effectively with foreign firms, resulting in a concentration of power and value in the hands of a small number of multinational corporations argue that natural resource-based economies face challenges in developing their domestic industries due to the dominance of foreign mining companies and the lack of linkages between the mining sector and other economic activities.

Model and Data
Our model is specified with various country-specific value-added determinants:

Yi,t = β1 Yi,t-1 +β2K/L +β2 Participationi,t + β Xt+εi,t (1)
where, Yi,t represents the overall growth in value-added, which is extracted from data in the EORA database.The variable K/L denotes the ratio of capital stock to labour compensation.The variable Xt comprises various country-specific control variables, including the human capital index as a proxy for human capital, the percentage of population growth as an indicator for the labour force, and the institutional quality proxy represented by the polity index (ranging from -10 to +10).Finally, the εi,t represents the error term in equation (1).
All country-specific determinants related to value added growth, except for the polity index from Polity IV database, are compiled from the World Development Indicators.We also derive the GVC participation ratios from full EORA MRIO tables by leveraging the method of [24].Specifically, forward participation is domestic value-added proportion of exports to the third countries.Meanwhile, backward participation is the ratio of foreign value added to the gross exports.These measures indicate that larger ratio means higher participation in GVCs.Specifically, GVCs for fuels encompass crude petroleum, natural gas, and coal, while GVCs for minerals include chemical minerals, iron ores, uranium and thorium, non-ferrous metal ores, as well as stone, sand, clay.To assess the initial the mean values are depicted in Table 1.
A notable observation in Table 1 is that backward participation ratio is higher than forward participation in both fuels and minerals.In other words, fuels and minerals industries rely on a higher level of foreign value added.Additionally, one should note that our measurement of forward participation excludes the simple participation and focuses on the complex participation, as defined by [25].The observation that resource-based industries exhibit higher backward participation than forward participation may be influenced by this methodological representation.To estimate equation 1, we employ the fixed effects methodology to address the unobserved individual heterogeneity.

Empirical Findings
Table 2 displays our findings regarding the influence of GVC participation on sectoral value-added growth in fuels and minerals industries for the full sample.In columns of 1 and 2, we separately consider forward and backward participation indices for the fuels industry.The positive coefficient on forward participation suggests that exporting the intermediaries have a stimulating effect on fuels value-added growth.The significantly positive coefficients on forward participation for fuels industry highlights the favorable effects of exporting intermediaries and opening up to foreign markets.This result is also lending the evidence for export-led growth (forward-led growth) hypothesis through participating fuels GVCs in our full sample [26].The 3 rd column of Table 2 indicates a positive link between involvement in minerals backward GVCs and the growth in minerals value added.This also aligns with several studies such as [27] which emphasizes the positive impact of inputs from abroad through various channels like knowledge spillovers, technology transfer, enhanced quality, and competitively priced goods.To gain more insight, we divide our sample into developing and developed using income levels provided by World Bank and depicted in Table 3.The development level of the countries could play important role of resource based GVC participation on value-added growth.The developed countries often possess the advanced technologies allowing for more efficient extraction and processing of natural resources, thereby enable them to participate in more complex value-added stages of GVCs and could reap higher the value-added gains.As can be seen from column 2 of Table 3, participating in fuel forward GVCs leads to higher value-added growth for developed countries' fuel industries.The positive effect of forward GVC participation often implies that higher market access, economies of scale and the demand for the domestic production, thereby increasing value-added growth [28].Also, our estimates reveal that minerals backward GVC participation has a significant and positive impact on mineral valueadded growth in column 3 of Table 3.This aligns with the arguments of the positive implications of knowledge spillovers and technology transfer through backward GVCs.The technology transfer and know-how can lead to improved production methods which leads to higher quality outputs and thus higher value-added growth [29].Engagement in forward GVCs for fuels allows developing countries to achieve higher rates of valueadded growth in fuels, as demonstrated in column 2 of Table 4.Such participation can optimize resource allocation in the mineral industry, thereby increasing the potential for these countries to develop comparative advantages.Efficient resource allocation can drive down the production costs and boost productivity hence contributing positively the value-added growth.As seen in column 3 of Table 4, through backward participation, minerals industries in developing countries could reach higher valueadded growth rate.This result is analogous to cost efficiency for firms through the access to specialized and cheaper inputs.The enhanced cost efficiency can lead to more competitive prices and increase the market share hence results in boosting value-added growth.

Conclusion
While previous research has primarily focused on GVCs' impact on macroeconomic indicators such as growth and productivity, fewer studies have delved into the specific interactions between natural resources and GVCs, especially across both developed and developing economies.This study addresses a notable gap in the burgeoning literature on resource based GVCs considering development level.Our investigation aims to contribute to this underexplored part by analyzing the influence of resource based GVC participation, with a focus on the fuels and minerals sectors, on sectoral value-added growth.To advance, we draw on EORA dataset that captures resource-based GVCs across 133 countries for the period from 1990 to 2016.We employ the fixed effects methodology, which allows us to account for unobserved individual heterogeneity, thereby enhancing the robustness of our empirical results.
Our empirical findings suggest that, for the full sample, participation in backward GVCs in the mineral sector and forward GVCs in the fuel sector exhibit significant and positive effects on sectoral value-added growth.Moreover, our results indicate that developed countries benefit particularly from forward GVC participation, witnessing favorable growth in value-added in both the fuels and minerals sectors.In contrast, for developing countries, it is specifically the participating in backward GVCs in the mineral sector that augments value-added growth.
We should note and emphasize some important points based on our findings.Given that both forward and backward participation in GVCs have shown positive effects on value-added growth, there is a clear case for countries to encourage firms to engage more deeply in global value chains.Since developed countries benefit particularly from forward GVC participation in both fuels and minerals, policies could aim to strengthen these sectors through targeted subsidies, R&D investment, or facilitating exports.The empirical results suggest that developing countries gain value-added growth from participating in backward GVCs in the mineral sector.Consequently, policy frameworks aimed at facilitating technological investments and the adoption of industry best practices for more effective integration into global mineral supply chains could yield significant benefits.

Table 1 :
Summary Statistics

Table 2 :
Impact of resource based GVCs on output growth: Fixed effects Estimations (Full Sample)

Table 3 :
Impact of resource based GVCs on output growth for developed countries

Table 4 :
Impact of resource based GVCs on output growth for developing countries