However, other producers benefit from increased market access and longer-term contracts. Certification can also lead to improved agroecological practices (Kleeman and Abdulai 2012) and increased revenues, though studies have shown wide variance, and an emphasis on measuring local context. In one randomized control trial of households producing certified organic coffee beans in Uganda, for instance, scheme participation is associated with an increase in net coffee revenue of around 75 percent on average, equivalent to 12.5 percent of mean (total) household revenue (Bolwig and Gibbon 2009).

# **3. Data and Empirical Specification**

## **3.1. Empirical Specification**

To capture the effect of GVC participation on the domestic economy and test if countries have been successful in economic upgrading, we estimate a standard fixed effects model for sector _s_ of country _k_ at time _t_ of the following form: We use the level of domestic value added ( _dva_ ) generated in sector _s_ as our measure of economic upgrading. Since we are interested in the effects of GVC participation, we use two standard GVC indicators as proxies for xs,c,t . The first indicator is the amount of foreign value added embodied in exports ( _FVAX_ ), while the second indicator is the amount of domestic value added re-exported by third countries ( _DVAR_ ). _FVAX_ quantifies a country’s backward links into GVCs (or GVC integration as a buyer), while _DVAR_ quantifies a country’s forward links into GVCs (or GVC integration as a seller). We use lagged values to minimize reverse causality concerns and allow for a delayed response of value added.

Our choice of domestic value added as measure of economic upgrading allows us to use the full sample of countries and industries covered by our databases and thus make it an optimal indicator to assess the effect of GVC related policies in developing economies. In addition, domestic value added combines the gains for firms (gross profits) and workers alike (total compensation). Finally, it combines factor productivity improvements and factor employment changes into one variable.

Alternative measures that might capture other relevant aspects of economic upgrading, such as labor productivity and TFP, focus on specific subtypes of upgrading, such as skills or process upgrading (see section 1). Moreover, they would require us to limit the sample size considerably since they are only available for high-income countries or at a much higher sectoral aggregation. Domestic value added, by contrast, reflects economic upgrading via better skills, capital, and processes, and therefore represents a comprehensive upgrading metric.

However, we have to add, there is a structural relationship between _dva_ and our forward links GVC measure that might bias the results. By using the lagged relationship this bias should be reduced, though, and, most importantly, it should not affect the qualitative results obtained with the policy interaction terms as shown below in equation (2).

Our set of controls ( _C_ ) includes the amount of foreign value added for domestic processing ( _FVADP_ ).<sup>4</sup> Here, we are guided by a standard production function of the form:

> 4 Capital stock and employment data are available for the WIOD sample, which we use for robustness exercises to improve the reliability of the results. The regressions based on the OECD sample rely on the three two-dimensional fixed effects.

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