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Backward and Forward Integration Along Global Value Chains

Author

Listed:
  • Davide Del Prete

    (University of Naples Parthenope)

  • Armando Rungi

    (IMT School for Advanced Studies – Lucca)

Abstract

Both backward (upstream) and forward (downstream) vertical integration strategies shape the organization of global value chains (GVCs). Yet, many studies make the unrealistic assumption that integration decisions are binary and one-directional. That is, for each production stage, companies make the integration decision only once, and this can be either backward or forward but not in both directions. The aim of this paper is to analyze the firm-level organization of GVCs when both vertical integration decisions are taken into account. Exploiting a global sample of more than 1.4 million firms, we first document how midstream parents, which actually integrate on both directions along the chain, are at least as common as downstream and upstream parents. We then find that parent companies prefer to integrate production stages with a relatively low elasticity of substitution and with a technological proximity on the supply chain. Finally, we provide evidence that more than one subsidiary in a given location can perform the same production stage.

Suggested Citation

  • Davide Del Prete & Armando Rungi, 2020. "Backward and Forward Integration Along Global Value Chains," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(2), pages 263-283, September.
    • Handle: RePEc:kap:revind:v:57:y:2020:i:2:d:10.1007_s11151-020-09774-y
    DOI: 10.1007/s11151-020-09774-y
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    3. Inferrera, Sergio, 2021. "Globalisation in Europe: Consequences for the business environment and future patterns in light of Covid-19," IWH-CompNet Discussion Papers 2/2021, Halle Institute for Economic Research (IWH).
    4. Cigna, Simone & Gunnella, Vanessa & Quaglietti, Lucia, 2022. "Global value chains: measurement, trends and drivers," Occasional Paper Series 289, European Central Bank.
    5. Aboah, Joshua & Wilson, Mark M.J. & Bicknell, Kathryn & Rich, Karl M., 2021. "Ex-ante impact of on-farm diversification and forward integration on agricultural value chain resilience: A system dynamics approach," Agricultural Systems, Elsevier, vol. 189(C).

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    More about this item

    Keywords

    Global value chains; Vertical integration; Property rights theory; Multinational enterprises; Downstreamness; Corporate boundaries;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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