Abstract
This study explores a relatively underexamined aspect of Global Value Chains (GVCs)—the transition from backward participation to forward participation, and the role of functional specialization and technology upgrading in facilitating this shift. Focusing on the automotive industries of China, Central and Eastern Europe (CEE), and Western Europe (WE), the analysis provides new insights into how economies at different development stages navigate GVCs to capture greater value. The results demonstrate that deepening backward participation can have opposing effects depending on a country’s level of industrial advancement. While WE’s well-developed automotive sector shows a negative relationship between backward and forward participation—suggesting resource diversion from existing high value-added activities—both China and CEE benefit from increasing backward participation, albeit with varying degrees of effectiveness. A critical threshold effect in CEE indicates that overreliance on foreign inputs (exceeding approximately 53.25%) undermines the long-term goal of transitioning to higher-value segments. Moreover, the study highlights that different types of functional specialization moderate the pace and nature of GVC upgrading. Technology upgrading also emerge as pivotal factors in sustaining forward participation, underscoring the importance of domestic capabilities accumulation and structural change of the industry. Taken together, these findings advance our understanding of GVC dynamics and offer actionable insights for policymakers seeking to foster sustainable economic growth.