Global Value Chains, Industrial Upgrading, and Local Labor Markets
Moving from the production of low-processed commodities to downstream basic manufacturing activities within a value chain is a popular policy strategy in emerging resource-rich economies. However, the welfare and productivity gains from this “route to industrialisation”, and its distributional impacts in local labor markets are not unambiguous. This study exploits variation in the upgrading from low-processed mine copper to smelting and refined copper exports in Chile, the world’s largest copper producer, with two main objectives:(1) identifying the role of resource endowments and export competition in inducing industrial upgrading in local labor markets; and (2) estimating the local welfare and productivity gains from this process of industrial upgrading. The results suggest that:(1) competition in global value chains plays a major role in shaping the development of downstream industries in the smelting and refinement of minerals;(2) the local welfare and productivity gains from industrial upgrading in local labor markets are small; and (3) due to comparative advantages given by resource endowments, the potential gains from industrial policy are largely concentrated in the primary segment of mineral extraction.