Firm Performance, Participation in Global Value Chains and Service Inputs : Evidence from India

This paper explores the relationship between the use of service inputs, participation in globalvalue chains, and firm productivity. Services play the role of both an intermediate input in production and acoordinator. Using a detailed Indian firm-level data set from 1990–2017, the paper estimates the productivity premiumassociated with varying depths of global value chain integration and different intensities and types of servicesused in the production. The study finds that firms in global value chains have a productivity premium between 13 and 22percent relative to domestic firms, with some variation based on the depth of global value chain integration and thesector to which the firm belongs. Both the type of service inputs used (composition of services) and the origin ofservices (whether sourced domestically or from abroad) matter for firm performance. While higher aggregate serviceinput use (as captured by the share of expenditure on service inputs) is not necessarily associated with anincrease in productivity, increased use of complex services and information technology services is associated withhigher productivity. The use of imported services is associated with higher productivity. Moreover, firms thatare more deeply integrated in global value chains benefit more from importing services.