Does backward participation in global value chains affect countries’ current account position?

This paper addresses the impact of countries’ backward participation in global value chains (GVCs) on their current account balances. Our results, based on a large panel of 57 advanced and emerging countries, contradict the speculation that current account imbalances of countries that import intermediate products to be used in their exports, i.e., countries with important backward linkages, are likely to benefit more from GVC participation. On the contrary, the authors show that backward participation makes a negative contribution to current account balances; this result being valid for both manufactured goods and services, with a stronger impact for the latter. Overall, they find that while backward linkages may allow competitiveness gains from producing domestically and boost exports, the increase in imports of intermediates and final goods—mainly capital goods—that are not necessarily related to GVC participation, more than offset the trade balance effects of these gains.