Organizing the global value chain: A firm-level test

Davide Del Prete and Armando Rungi

Journal of International Economics, 2017, vol. 109, issue C, 16-30

Abstract: In this paper, we study the organization of Global Value Chains on a sample of about 4000 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.

Keywords: Global value chains; Vertical integration; Property rights theory; Multinational enterprises; Downstreamness; Corporate boundaries (search for similar items in EconPapers)
JEL-codes: D23 F14 F23 G34 L20 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199617300995
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Organizing the Global Value Chain: a firm-level test (2015)
Working Paper: Organizing the Global Value Chain: a firm-level test (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:109:y:2017:i:c:p:16-30

DOI: 10.1016/j.jinteco.2017.08.003

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().