Exploring knowledge spillovers and GVC participation to understand double counting in GVCs: A case study of Japan

As global value chain (GVC) participation and knowledge spillovers have arguably become more crucial for countries, it is still challenging to measure their real value for countries. The complexity comes from the trade in intermediate goods as part of GVCs and the inability to track their coupling with additional components and services. The result is double counting and lack of clarity about the real value of GVCs for countries. This paper assesses how GVC participation and knowledge spillovers influence double counting and transitively the innovation and value added growth in GVCs for the case of Japan. The empirical evidence suggests that expanding production fragmentation within GVCs and diversifying foreign suppliers in production stages foster innovation and maximize knowledge diffusion, leading to enhanced value added output. Thus, knowledge spillovers and feedback effects within and between countries at bilateral and multilateral integration levels affect the GVCs. The paper sheds light on the intricate nature of intermediate goods flows in GVCs and the link between double counting and knowledge spillovers in GVCs.