Technological Innovation, Productivity, and Global Value Chains Participation of Philippine Manufacturers

Abstract

Using a unique dataset on Philippine manufacturers from 2007 to 2011, this study adopts the three‐stage Crépon‐Duguet‐Mairesse model to trace which trade linkages in global value chains (GVCs) contribute to Philippine firms' technological innovation and labor productivity. The results indicate that Philippine GVC suppliers primarily implement incremental process innovations using imported technology and externally sourced knowledge, while internally developed technology is less common. Accordingly, imported rather than indigenous knowledge contributes more to the labor productivity premium of GVC suppliers. Nevertheless, pure exporting is generally unrelated to process and product innovations. These results suggest that the innovation and productivity effects of GVC participation in the Philippines are mainly driven by imports and foreign‐sourced technology. Since suppliers' innovative behavior tend to complement the technological requirements of their production activities, we argue that the results are consistent with Philippine manufacturers' limited participation in technology‐ and innovation‐intensive GVC functions. The implication on long‐run upgrading is discussed.