How firms position and perform in global value chains with financial frictions: evidence from China

Wenqi Hu and Pompeo Della Posta

Applied Economics Letters, 2025, vol. 32, issue 13, 1941-1945

Abstract: This article clarifies the relationship between financial frictions, production line position and firm-level performance in China. We develop a stylized model in a partial equilibrium setting and incorporate financial frictions into the sequential production of firms. We use a sample of unbalanced panel data ranging from 19,929 firms in 2000 to 61,109 firms in 2013, by merging China’s Customs Dataset, Chinese manufacturing firm dataset and global input-output tables between 2000 and 2013. In the presence of lower financial constraints, we find that: first, the firm’s span of production stages becomes wider by its imports becoming more upstream and its exports becoming more downstream, and its average position becomes relatively downstream; Second, it tends to decrease debt financing relative to equity financing and obtains higher profits.

Date: 2025
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DOI: 10.1080/13504851.2024.2331670

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