Impacts of Firm GVC Participation on Productivity: A Case of Japanese Firms

This article examined the effect of participation in global value chains (GVCs) on productivity for Japanese manufacturing firms by using firm-level data obtained from the Basic Survey of Japanese Business Structure and Activities [Kigyo Katsudo Kihon Chosa], Ministry of Economy, Trade and Industry. We define a firm that is engaged in both importing and exporting as a GVC firm. Our analysis is conducted for the period 1994-2018, and it covers approximately 10,000 firms for each year with some variation during the period. We combine the Propensity Score Matching (PSM) and Difference in Differences (DID) estimation methods in order to examine the impact of a shift from being a non-GVC firm to a GVC firm, or participation in GVCs by a non-GVC firm, on its productivity. To test the importance of experience in GVC participation on productivity (learning effect), we estimated the impact not only for the first year of GVC participation but also for subsequent five years. Our analysis showed the impact of GVC participation on productivity is positive for our 110 estimations with few exceptions, and the estimated coefficients are statistically significant for approximately 35 percent of the cases. These findings indicate that the impact of GVC participation on productivity for Japanese manufacturing firms is generally positive, but the impact is not very strong. We also found that the magnitude of the positive coefficient increased over time, indicating that it takes GVC participating firms time and the accumulation of experience to assimilate new technology and management know-how they acquired through GVC participation.