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Organizing the Global Value Chain: a firm-level test

Author

Listed:
  • Davide Del Prete

    (Dipartimento di Scienze Sociali ed Economiche, Sapienza University of Rome (Italy).)

  • Armando Rungi

    (IMT Lucca (Italy).)

Abstract
In the last two decades, technological progress and a decrease in trade barriers fostered the formation of global value chains, in which different sequences of production stages, previously performed in close proximity, can now be unbundled globally. In this contribution we test at the ?firm level the optimal allocation of ownership rights along a productive sequence, as in the framework set by Antras and Chor (2013). For this purpose we exploit an own-built dataset made of 4,214 parents which have acquired or established at least one affiliate in the period 2004-2012. Overall, they control 104,720 affiliates and operate in 185 countries. Assuming a technological orientation of the value chain from the final consumer upwards, we positively test that incentives to integrate suppliers vary systematically with: i) the relative upstream or downstream position of the affiliate with respect to the parent; ii) the elasticity of demand faced by the parent. Further, we ?find new insights for firm-level heterogeneity along supply chains, as more productive and bigger parent companies are more likely to choose affiliates next to the final consumer. Once controlling for the complexity of the internal supply chain at the moment the investment decisions occur, we find that bigger internal chains show a lower propensity to integrate at the margin, probably discount increasing coordination costs. Results are robust after different specifications. However, we detect some non-linearities over ?firm-level distributions, when integrated affiliates approach the bottom of the supply chain, next to the ?final consumer, after the VIII decile of the affiliates' downstreamness. In this case we presume that a horizontal rather than a vertical integration strategy could prevail.

Suggested Citation

  • Davide Del Prete & Armando Rungi, 2015. "Organizing the Global Value Chain: a firm-level test," Working Papers 2/15, Sapienza University of Rome, DISS.
    • Handle: RePEc:saq:wpaper:02/15
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    References listed on IDEAS

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    More about this item

    Keywords

    global value chains; vertical integration; property rights theory; multinational enterprises; downstreamness; business groups.;
    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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