The Impact of Government R&D Subsidies on Participation in GVCs

Abstract

The global economy today is characterized by globalization and rapid technological development, with 80% of world trade occurring through global value chains (GVCs). Participation in GVCs requires firms to innovate, which becomes a key element of their competitiveness. The development and implementation of innovations can take place either within the framework of cooperation between companies, universities and research centers, or by firms on their own, provided there is sufficient government subsidy for R&D. Such subsidies facilitate integration into GVCs and might lead to repositioning to more profitable chain links. The article highlights the significant impact of government R&D subsidies on participation in global value chains due to easing corporate financing constraints. To improve their position in GVCs, firms should modernize production and carry out research, and government subsidies could significantly expand private investment in R&D.