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Organizing the Global Value Chain: a firm-level test

Author

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  • Davide Del Prete

    () (IMT School for Advanced Studies)

  • Armando Rungi

    () (IMT School for Advanced Studies)

Abstract

In this paper we study the organization of Global Value Chains on a sample of about 4,000 manufacturing parent companies operating more than 90,000 affiliates on a global scale, which chose to integrate at least once in the period 2004–2012. Assuming a technological sequence of production stages, a recent property rights framework (Antràs and Chor, 2013; Alfaro et al., 2015) predicts that a choice of vertical integration is crucially based on both the position of a supplier along the chain and on the relative size of demand elasticities faced by the final producer and the supplier. We positively test whether, if final demand is sufficiently elastic (inelastic), producers of final goods integrate production stages that are more proximate to (far from) the consumers. However, this is not valid for cases of midstream parents, i.e. for producers of intermediate inputs that can integrate either backward or forward along the chain. We document that midstream are at least as common as are downstream parent companies but that existing theory neglects them. In these cases, we find that demand elasticities do not play a significant role in integration choices. Interestingly, both midstream and downstream parents tend to integrate affiliates that are more proximate in segments of a supply chain. Our findings point to a role for technological determinants that may be as important as are contracting frictions in organizing Global Value Chains.

Suggested Citation

  • Davide Del Prete & Armando Rungi, 2015. "Organizing the Global Value Chain: a firm-level test," Working Papers 4/2015, IMT Institute for Advanced Studies Lucca, revised May 2015.
  • Handle: RePEc:ial:wpaper:4/2015
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    Citations

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    Cited by:

    1. Armando Rungi & Davide Del Prete, 2017. "The ‘Smile Curve’: where Value is Added along Supply Chains," Development Working Papers 428, Centro Studi Luca d'Agliano, University of Milano, revised 10 Apr 2017.
    2. 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.
    3. repec:eee:ecolet:v:164:y:2018:i:c:p:38-42 is not listed on IDEAS
    4. repec:spr:weltar:v:153:y:2017:i:4:d:10.1007_s10290-017-0292-2 is not listed on IDEAS
    5. Davide Del Prete & Giorgia Giovannetti & Enrico Marvasi, 2017. "Global value chains participation and productivity gains for North African firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 153(4), pages 675-701, November.
    6. Loredana Fattorini & Armando Rungi & Zhen Zhu, 2017. "The Organization of Global Supply Networks," Working Papers 08/2017, IMT Institute for Advanced Studies Lucca, revised Nov 2017.
    7. Armando Rungi & Davide Del Prete, 2017. "The 'Smile Curve': where Value is Added along Supply Chains," Working Papers 05/2017, IMT Institute for Advanced Studies Lucca, revised Mar 2017.
    8. Gabor Bekes & Marta Bisztray, 2017. "Do friends follow each other? FDI network effects in Central Europe," IEHAS Discussion Papers 1719, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

    More about this item

    Keywords

    global value chains; vertical integration; property rights theory; multinational enterprises; downstreamness; corporate boundaries;

    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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