Global value chain participation in boosting innovativeness of European businesses: Evidence from the European Union countries

Aim/purpose – Global value chains (GVCs), along with their specific forms of forward and backward linkages, remain the predominant mode of global production. However, their consequences for national economies are not universally clear. Our study aims to assess the impact of forward (FWD) and backward (BWD) GVC participation on business innovation in the European Union (EU) countries. We analyze this influence using a dual approach: examining all member states as well as four subgroups of EU countries, categorized by their level of innovation and length of EU membership.

Design/methodology/approach – Macro-panel regressions based on data for 27 EU countries were used to achieve these aims. Followed by the variance inflation factors (VIFs) tests, the Breusch–Pagan tests, and the Hausman tests, we estimated panel regressions with fixed effects, controlled for heteroscedasticity, autocorrelation, and cross-sectional dependence.

Findings – Results confirm that backward GVC linkages have a positive impact on the innovativeness of European businesses. When considering subgroups of EU countries, the impact of backward GVC participation on innovation is stronger in countries with a lower level of innovativeness compared to those with higher innovativeness, and in countries with shorter EU membership compared to those with longer membership. The impact of forward GVC participation is mostly statistically insignificant, with the only effect being a reduction in innovation among companies in the “new” EU countries. Thus, we confirm the differences in the impact of GVC linkages on the innovativeness of businesses at the EU macro level.

Research implications/limitations – Practical implications of the study include recommendations for increasing the innovation capabilities and absorptive capacity of European businesses through backward participation in GVCs, with nuances related to the characteristics of the EU countries. The innovation policies should reflect differences between “old” and “new” EU members to bridge the EU’s innovation gap.

Originality/value/contribution – Our paper contributes to the discussion on innovation and its connection with the GVC. We delve deeper into the impact of GVC linkages on the innovativeness of European businesses by decomposing them into the forward and backward GVC participation and by categorizing EU countries into groups with relatively high or low levels of business innovation, as well as into “old” and “new” member states. Our findings confirm the complexity of these relationships depending on the nuances of countries’ characteristics, which have not yet been clearly highlighted in the existing literature on the GVC-innovation nexus within the EU.