Harnessing global value chains in international trade: Effects on Türkiye's exports, domestic value creation and employment

The aim of this study is to reveal the economic gains that the Turkish economy can achieve by increasing its integration into global value chains (GVCs). GVCs are production processes in which production is broken down into specific stages and final products are produced by allocating these stages to the most efficient suppliers in different geographical regions based on comparative advantage. The theoretical foundations of GVCs are based on a broad background of comparative advantages, production fragmentation, offshoring, vertical specialization, unbundling economies and trade in tasks. GVCs offer significant opportunities for development, especially for developing economies. Participation in GVCs increases economic efficiency through strong inter-firm interactions and advanced specialization, leading to increased exports, value added and employment in the economy. In this study, the effects of forward and backward GVCs participation on exports, the effects of export increases on the share of domestic value added in exports, and the effects of domestic value added on employment are estimated with the CS-ARDL method through three regression models covering the period 1995-2020 and 17 manufacturing industry sub-sectors for the Turkish economy. According to the findings, both forward and backward participation in the GVC positively affects export performance. Increases in exports are realized by decreasing the share of domestic value added in exports. This finding suggests that Turkey has a high dependence on foreign inputs in exports. Increases in domestic value added also positively affect employment. The final conclusion of this study is that investment, industrial and foreign trade policies to increase GVC participation will strengthen exports and employment. The motor vehicles, electrical equipment and pharmaceutical industries stand out for a GVC-oriented transformation of the Turkish economy.