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Organizing the Global Value Chain: A firm-level test

Del Prete, Davide and Rungi, Armando Organizing the Global Value Chain: A firm-level test. Journal of International Economics, 109. pp. 16-30. ISSN 0022-1996 (2017)

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In this paper, we study the organization of Global Value Chains on a sample of about 4,000 manufacturing parent companies integrating more than 90,000 affiliates in 150 countries. Assuming a technological sequence of production stages, a recent property rights framework (Antràs and Chor, 2013; Alfaro et al., 2015) predicts that vertical integration decisions are crucially based on both the position of a supplier along the chain and on the relative size of demand elasticities faced by the final-good producer and the supplier. In line with this, we find that if final demand is sufficiently elastic (inelastic), downstream parents, i.e. final-good producers, integrate production stages that are more proximate to (far from) final demand. However, this result is not valid in the case of midstream parents, i.e. producers of intermediate inputs that can integrate either backward or forward along the chain. We document that these companies are at least as common as are downstream parents, but the existing theory neglects them. In these cases, we find that demand elasticities do not play a significant role in integration choices. Interestingly, both midstream and downstream parents tend to integrate affiliates that are more proximate in segments of a supply chain, probably due to technological complementarities in adjacent industries.

Item Type: Article
Identification Number: 10.1016/j.jinteco.2017.08.003
Uncontrolled Keywords: JEL classification F14; F23; D23; G34; L20 Keywords global value chains; vertical integration; outsourcing; property rights theory; multinational enterprises; downstreamness; corporate boundaries
Subjects: H Social Sciences > HB Economic Theory
Research Area: Economics and Institutional Change
Depositing User: Ms T. Iannizzi
Date Deposited: 04 Sep 2017 10:27
Last Modified: 19 Sep 2017 14:44
URI: http://eprints.imtlucca.it/id/eprint/3768

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