Productivity spillovers in the GVC: The case of Poland and the New EU Member States

The New Member States have been experiencing firm internationalization not only through inward foreign direct investment but also through exporting, importation of foreign technology in investment goods and increased use of imported intermediates. We argue that there are important productivity spillovers within the global value chains, ie. FDI alone does not tell the whole story of the reallocation processes going on in the economies of the NMS. We augment the standard TFP spillover empirical model with modern measures of GVC participation to contribute to the debate on the 'desired' country/sector/firm position in the GVC. In our study we combine firm-level data with international sectoral input-output data. Firm level data come from the Amadeus database. In order to maximize the number of observations, we combine data from multiple Amadeus waves. The resulting firm-level data sample covers the period of 1997-2011. The study has two parts. In the first part, we analyze the foreign firm producticvity premia over the domestic firms. We check if the foreign productivity premium is affected by the position of the firm in the Global Value Chain and the foreign content of sectoral exports. We do that in order to verify if there are benefits of the positition in the GVC that lead to lowering the productivity gap between foreign and domestic firms. In the second part, we augment the methodology by Smarzynska-Javorcik (2004) with measures of GVC participation to analyze the various channels of internationalization. In order to obtain a measure of total factor productivity we use the now-standard approach by Levinsohn and Petrin (2003). We focus on Poland but we also run the spillover equations on the full New Member States sample and on the individual NMS. All regressions control for country/sector specificity and the business cycles. We show that increased foreign content of exports brings additional productivity gains on top of the ones attributed to exporting and FDI spillovers that are mostly backward in nature. Moreover, we show that in selected cases, participation in the GVC leads to a smaller productivity gap between foreign and domestic firms. In Poland and Hungary the productivity gains for domestic firms are located in production of intermediate goods with high foreign value content as well as in goods located close to the final demand. In many other NMS the benefits are concentrated close to the final demand.