period 1990-2017). The study finds that access to and use of service inputs seems to be an important driver for GVC integration. The depth of GVC integration depends on the intensity of services inputs. Firms which are highly productive, larger in size, pay a higher wage per value added, have a higher leverage ratio and are older are more likely to be more deeply integrated into GVCs. Firms with low service input intensities are unlikely to be integrated in GVCs. If firms not participating in GVCs increase their service input intensity, the likelihood that they begin participating in GVCs increases substantially. The probability to integrate at different levels (limited, low, medium, high) increases with the service input intensity. Moreover, the composition of services matters for GVC integration. Indian firms using complex services and IT and IT-enabling services are typically more deeply integrated into GVCs.

This paper is structured as follows. Section 2 provides an overview of the extent of India’s integration in GVCs using macro data. In section 3, we describe our data and the empirical approach to analyze the relationship between GVC participation and service input use at the firm level. Section 4 presents descriptive analysis on GVC integration and service input use by firms. Section 5 presents the results of our estimation on the probability of integrating into GVCs in any mode and service input usage. Section 6 concludes.

# 2. Background

The GVC participation index as proposed by Koopman et al. (2014; 2010) and subsequently used in empirical studies is used to measure the GVC participation of India in comparison to other economies. The cross-country data used to construct the index is from the Trade in Value Added and exports database of OECD. The participation index considers two sides of GVC -backward participation or the ‘sourcing’ side and forward participation or the ‘supply’ side. GVC backward participation captures the foreign inputs a country sources into its production process for exports and is expressed as a ratio of foreign value added in gross exports to gross exports. The GVC forward participation captures the domestic inputs a country produces and used in its own production processes and exports, which are in turn not fully absorbed in the importing country but are embodied in the exports of the importing countries. This is expressed as a ratio of domestic value added in third country exports to gross exports. Countries place themselves naturally across these two types of GVC participation. For instance, countries with greater levels of natural resources are often positioned upstream in GVCs and are likely to develop strong forward linkages as input providers. Countries with larger market sizes are less likely to import intermediate goods and services because of their capacity to produce the same, while smaller countries that lack market size usually have higher backward participation rates. Similarly, countries with an abundance of low-skilled labor generally have higher backward GVC participation for producing low-skill-intense manufacturing (and services) activities. See World Bank (2020) for a more in-depth exposition.

India’s participation in manufacturing GVCs is lower than several countries such as Mexico, Malaysia, Vietnam, the Republic of Korea, Germany, and others. The left panel of Figure 1 shows the GVC participation in manufacturing on the y-axis, and the scale of exports in natural log scale (of million dollars) on the x-axis. The extent of GVC trade by a country is determined both by the intensity or participation index as well as by the scale of participation. While India has a slightly higher manufacturing GVC participation index compared to China and the United States, the two countries participate in GVCs at a 3