Global Value Chains and Business Environment: Which Factors Do Really Matter?

This study attempts to assess the effect of business environment on the possibility of a firm to be part of a global value chain. Hence, it provides a bridge between two active literatures on global value chains (GVC) and business environment. Using a comprehensive firm-level dataset from the World Bank Enterprise Survey (WBES, with a special focus on the case of MENA countries), the contribution of the paper is threefold. First, it provides various and more consistent measures of GVC. Second, it examines the association between an array of business environment variables (infrastructure, labor conditions, access to finance, fiscal policy, enforcement of contracts, easiness of permits, informality, trade procedures and security) on the likelihood of integrating a GVC. Third, for these business environment variables, our paper compares both perception-based (based on firms’ perceptions) and factual (based on facts whether from the WBES or from the Doing Business dataset) impediments that might be hindering a firm’s participation in a GVC. Our main findings show that, for factual variables, the number of procedures to get electricity, the lack of credit bureau coverage, the number of tax payments, the cost to resolve insolvency, the number of documents to export, the number of procedures to register property and protecting minority investors have a negative and significant association with the integration into a GVC. For perception-based variables, the following variables are perceived as statistically significant constraints for GVC: transport, labor regulations and informality.