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The scholarship on Global Value Chains (GVCs) is recently recognising the increasing importance of fragmentation of production that involves services – and in particular business services – offshoring. A predominant stand by scholars emerges in this embryonic domain (Blinder 2006); (G Gereffi and Fernandez-Stark 2010): participation in business services GVCs might be considered a sort of ‘third unbundling’ of internationalisation of production, which opens up new opportunities for catching up in transition and developing countries. What are the theoretical and empirical bases for such a claim? Do these apply to both developed and developing contexts? Is the occurrence of “a flat world” (Friedman 2005) ultimately responsible for a global sectoral structural change involving services? This paper puts forward the conjecture that factor endowments and costs are not the only driver for the emergence of service GVCs and that the specific domestic Hirschman-linked specialisation are of great importance. We empirically test this conjecture on the basis of the WIOD data in a GMM framework. We then attempt implications in terms of industrial policy for developing countries on the importance of developing domestic specialisation in business services before joining GVCs as a catching-up strategy.

When Linder Meets Hirschman: Inter-Industry Linkages and Global Value Chains in Business Services.