| Abstract | This paper builds on Francois (1990) model to characterize the growth mechanism and productivity effect of producer services in the context of the global value chains. To test the idea, we conduct empirical regressions by using the WIOD transnational input-output datasets. The results show that, with the expansion of output, the GVC division of labor deepens and the labor input share for the activities of producer services increases, and with the rise of the labor input share for producer services, the total factor productivity (TFP) of final products/sectors tends to improve. But this differs with the source countries where the labor embodied in producer services comes from. That is, the expansion of domestic outputs will to a larger extent lead to the increase in the domestically originated producer services’ labor share, but the TFP of domestic final products/sectors is mainly positively correlated with the foreign-sourced producer services’ labor share. The policy implication is that, under the global value chains, making domestic markets more open and more competitive will help expand market and output scale, deepen specialization and division of labor, thus to promote the growth of producer services and economic efficiency. |