The Changing Structure of Global Value Chains: Are Central Hubs Key for Productivity?

This article uses "centrality" metrics reflecting position within Global Value Chains (GVCs) to identify central hubs and peripheral European economies and sectors. We find evidence of large changes in the structure of European production networks, with rising importance of Eastern European economies coinciding with the timing of their EU accession. Using cross-country firm-level data from ORBIS, we find that changing structure of GVCs can play a role in the catch-up of firms, but the effects are heterogeneous across firms and countries. First, becoming more central is associated with faster productivity growth of firms in post-2004 EU members. Second, the average productivity (centrality weighted) of buyers/suppliers matters for the productivity of firms overall in other European economies, and particularly non-frontier (initially less productive) firms in both groups of countries. The results for post-2004 EU members suggest that policies to encourage integration into GVCs are particularly important for the productivity of emerging or less integrated economies, whereas for more advanced economies a more sophisticated policy is needed that encourages the formation of linkages with productive, frontier foreign firms and economies.