Human capital and participation in global value chains: Evidence from small and medium-sized enterprises in Indonesia

This paper examines the effects of human capital on SMEs' participation in global value chains using Indonesian firm-level data. The paper adopts the discrete choice modeling of the probit framework to examine the behavior of firms in the export market. In particular, it examines SME behavior in the export market using firm-level data from the Indonesian Annual Manufacturing Survey in 1996 and 2006. The results indicate that SMEs' size, ownership structure, and financing capability drive their participation in global value chains. The results also suggest that SMEs with linkages to global value chain activities are more likely to have a higher level of human capital, higher productivity, more assets, and investment in research and development. We also find that "learning by exporting" and proximity to an export hub tend to play an important role in shaping SMEs' role in global value chains.