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Backward and Forward Integration Along Global Value Chains

Davide Del Prete () and Armando Rungi ()

Review of Industrial Organization, 2020, vol. 57, issue 2, No 5, 263-283

Abstract: Abstract Both backward (upstream) and forward (downstream) vertical integration strategies shape the organization of global value chains (GVCs). Yet, many studies make the unrealistic assumption that integration decisions are binary and one-directional. That is, for each production stage, companies make the integration decision only once, and this can be either backward or forward but not in both directions. The aim of this paper is to analyze the firm-level organization of GVCs when both vertical integration decisions are taken into account. Exploiting a global sample of more than 1.4 million firms, we first document how midstream parents, which actually integrate on both directions along the chain, are at least as common as downstream and upstream parents. We then find that parent companies prefer to integrate production stages with a relatively low elasticity of substitution and with a technological proximity on the supply chain. Finally, we provide evidence that more than one subsidiary in a given location can perform the same production stage.

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: 2020
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DOI: 10.1007/s11151-020-09774-y

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Handle: RePEc:kap:revind:v:57:y:2020:i:2:d:10.1007_s11151-020-09774-y