Financial Constraints, Trade Mode Transition, and Global Value Chain Upgrading of Chinese Firms

Lin Chen, Sumei Luo and Tian Zhao
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Lin Chen: School of Economics and Institute for China Finance Research, East China Normal University, Shanghai 200062, China
Sumei Luo: School of Finance, Shanghai University of Finance and Economics, Shanghai 200433, China
Tian Zhao: Department of Economics, the University of North Carolina at Chapel Hill, Chapel Hill, NC 27514, USA

Sustainability, 2019, vol. 11, issue 17, 1-18

Abstract: China is facing the serious problem of ‘low-end locking’ in the global value chain as it becomes deeply integrated into world trade. Deciphering how to upgrade Chinese enterprises’ positions in the global value chain is crucial to China’s economic transformation and sustainable development. This study explores the feasibility of upgrading China’s global value chain from the perspective of financial constraints. Based on a theoretical framework, this study applies firm-level production data and trade data, using a documented method of measuring domestic value added at the firm level. Besides, we apply three methods to comprehensively measure the financial constraints faced by enterprises. In our study, we verify the findings of previous empirical studies that reducing financial constraints can significantly increase enterprises’ domestic value added, and this conclusion remains valid after considering various robustness tests. Our heterogeneity analysis indicates that easing financial constraints can significantly contribute to Chinese private enterprises’ upgrade in the global value chain, which could be related with “ownership discrimination” of Chinese banks. Finally, this study analyses the two mechanisms by which relaxing financial constraints could promote global value chain upgrading: (i) directly transfer enterprises’ trade mode from processing trade to general trade and (ii) allowing enterprises to climb up in the global value chain.

Keywords: financial constraints; value added at the enterprise level; trade mode transition; value chain upgrading (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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