Upgrading in Global Value Chains; A Firm-Level Empirical Analysis of Indian Manufacturing

UoM administered thesis: Phd

  • Authors:
  • Karishma Banga

Abstract

International trade has become increasingly complex with the emergence of Global Value Chains (GVCs) and production networks; trade in GVCs accounts for almost 80% of global trade. Participating in GVCs can create important opportunities for developing country firms to undertake economic upgrading. However, gains from linking into GVCs are neither automatic nor uniform. For a more holistic understanding of upgrading, the study builds an integrated framework in which upgrading opportunities for a supplier firm depend on both its GVC integration and internal technological capability (TC). Drawing on this framework, the study empirically examines whether GVC integration has boosted product and process upgrading in Indian manufacturing firms, using firm-level data from Prowess for the period 2001-2015. Three aspects of GVC integration are examined; a) the impact of GVC status, b) the impact of GVC embeddedness and c) the impact of GVC governance. GVC firms are identified as two-way traders that are simultaneously importing intermediates and exporting intermediate or final products, and GVC embeddedness is estimated using firm-level measures of vertical specialisation. To capture GVC governance, the study uses firm-level data on skilled labour and ICT. Product upgrading is estimated by measuring firm-level product sophistication, weighted by share of product in total sales of the firm. Process upgrading is captured by estimating firm-level total factor productivity using the Levinsohn-Petrin methodology. Information on R&D, royalty and technical know-how fee is used to construct estimates of Innovative and Operational TC. To address econometric issues of endogeneity and self- selection, a range of methodologies are employed in the study, including OLS, Fixed-effects, System GMM and Propensity Score Matching. A number of robustness checks are also carried out. Empirical results show that linking into, and increasing participation within, GVCs boosts firm-level product-sophistication, with innovative TC playing a complementary role. However, firms in Captive chains (highly power asymmetrical governance structures) produce significantly less sophisticated goods than firms in Relational chains, which exhibit a balance in power between buyers and suppliers. Similarly, linking into GVCs and GVC embeddedness boosts firm-level TFP, with firms in Relational chains experiencing higher productivity growth. Policy suggestions for gainfully linking into GVCs include boosting trade facilitation, improving the business environment, infrastructure development, setting up targeted innovation policies, and moving into Relational GVCs through skills and ICT-development.

Details

Original languageEnglish
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Award date1 Aug 2019