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Is Domestic Value Addition a Source of Export Sophistication? A Case Study India

Tandon, Anjali (2020): Is Domestic Value Addition a Source of Export Sophistication? A Case Study India. Published in: ISID Working Paper Series , Vol. 2020, No. April (April 2020)

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An implication of a globally fragmented production system is that countries which assemble and export high-tech products could reflect a sophisticated export structure while generating low domestic value-added component. Therefore, understanding the relationship between domestic value- added component in export, and the export sophistication of a country would be helpful in assessing if the country indeed achieved a quality improvement through indigenous attempts. However, for countries with export competitiveness essentially on grounds of cheap and abundant labour, rather than technological advantage, there is a significant disincentive to invest in innovation and R&D. This could possibly the case for India, motivating the investigation. Results show that exports of sophisticated products, which also belong to the high- technology segment, are paired with low indigenous contribution in the product manufacture. The subscription to imports for exporting high-tech products reflects upon the deficient domestic R&D needed to bolster innovative practices such as product design and engineering. There needs to be a conscious effort to indulge in production stages characterized by high domestic value addition content.

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