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Internalizing Global Value Chains: A Firm-Level Analysis

Author

Listed:
  • Laura Alfaro
  • Pol Antras
  • Davin Chor
  • Paola Conconi

Abstract

In recent decades, technological progress in information and communication technology andfalling trade barriers have led firms to retain within their boundaries and in their domesticeconomies only a subset of their production stages. A key decision facing firms worldwide is theextent of control to exert over the di↵erent segments of their production processes. Building onAntr`as and Chor (2013), we describe a property-rights model of firm boundary choices alongthe value chain. To assess the evidence, we construct firm-level measures of the upstreamness ofintegrated and non-integrated inputs by combining information on the production activities offirms operating in more than 100 countries with Input-Output tables. In line with the model’spredictions, we find that whether a firm integrates upstream or downstream suppliers dependscrucially on the elasticity of demand for its final product. Moreover, a firm’s propensity tointegrate a given stage of the value chain is shaped by the relative contractibility of the stageslocated upstream versus downstream from that stage. Our results suggests that contractualfrictions play an important role in shaping the integration choices of firms around the world.

Suggested Citation

  • Laura Alfaro & Pol Antras & Davin Chor & Paola Conconi, 2015. "Internalizing Global Value Chains: A Firm-Level Analysis," Working Papers ECARES ECARES 2015-29, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:eca:wpaper:2013/216728
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    References listed on IDEAS

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    More about this item

    Keywords

    global value chains; sequential production; incomplete contracts;
    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
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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