Quality upgrading and position in global value chains

This paper analyzes the extent to which the quality of the exported food products affect the firms' position in global value chains (GVCs). Extending the theoretical framework of Chor et al. (2021), we argue that the quality upgrading allows firms to span more production stages in GVCs by importing products with a lower level of processing (more upstream), and exporting a goods with higher level of processing (more downstream). Expansion along GVCs through quality upgrading is accompanied by increased input purchases, assets, profits and value added in production. These theoretical predictions are tested using firm-level data on the French agri-food industry. In line with recent work, we identify two-way traders as firms that participate in GVCs and assess their position along the chain through the level of transformation of traded goods. We link the matched French Customs-AMADEUS 2000-2018 data with the US input-output table converted to the NACE Rev.2 level, which identifies agri-food industries at a very detailed level, and compute upstreamness indicators for each industry and firm, following recent approaches in the literature. We find empirical evidence broadly supportive of our key predictions.