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Firms’ Efficiency and Global Value Chains: AnEmpirical Investigation on the Italian Industry
M. Agostino, E. Brancati, A. Giunta,F. Trivieri, and D. Scalera
Sapienza University of Rome
21/10/19 LUISS
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Research Question
Effect of GVC participation on firms’ efficiency:
Data Envelopment Analysis (DEA) to measure technical efficiency.
Newly available Italian survey (MET) to design a taxonomy of GVCinvolvement.
Emphasize heterogeneities across GVC participation modes and com-panies’ position along the chain.
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Related Literature
Vertical specialization and fragmentation of the production processes:Findlay (1978), Grossman and Rossi-Hansberg (2006), Markusen andVenables (2007), Antras and Chor (2013), among others.
Many studies focused on macroeconomic consequences of upsurgeof GVCs and policy issues (Koopman et al., 2011; De Backer andMiroudot, 2014, among others).
Opportunity for local producers to learn from global leaders alongthe chain, particularly beneficial for SMEs.
Neither all transactions are alike, nor benefits equally shared: cen-trality of governance. Gereffi et al. (2005) classify governance basedon:
complexity of transaction;degree of codifiability;capability of the firms.
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Related Literature and Contributions 2
Relationship GVCs-performance often investigated through produc-tivity indicators (Agostino et al., 2015; Del Prete et al. 2017, Gio-vannetti et al., 2015; Veugelers et al., 2013).
We focus on pure technical efficiency (firm ability to locate closer tothe efficiency frontier): exclude sources due to technological progressand changes in scale.
Propose a novel approach to identify GVCs and their participationmodes (complex phenomena require complex proxies).
Counterfactual analysis (PSM) and truncated regression models toestimate the impact on firms’ efficiency.
We explore heterogeneity along:
governance mode (relational vs. conventional GVCs);firm positioning (suppliers vs. final firms);time length of participation (new entrants vs. established GVCs).
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Main Results
Firms involved in GVCs are, on average, more efficient.
Disproportional efficiency gains for complex and strong inter-firmrelationships involving knowledge exchange.
Benefits are greater for suppliers (generally suffering from a produc-tivity discount) than final companies.
Gains take less time to manifest for relational GVCs, while occurringin a longer time period for conventional GVCs.
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Data
MET survey on the Italian industry:
Three-waves survey: 2009, 2011, and 2013.Roughly 25,000 observations per wave, representative at size (all classes),region, and industry levels.Rich set of information including: purchasing/selling matrix, type of goodsold & purchased, inter-firm networks, participation to the design of thefinal product, R&D, share of sales to other companies (final vs. suppliers),import, export, etc.In this paper: focus on SMEs and manufacturing sector only.
Firm-level balance-sheet data: Cribis D&B.
Select companies with complete balance sheets in the 5 years of in-terest (to compute DEA).
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GVC participation
A firm is considered to belong to a GVC if (at least) one of thefollowing conditions occurs:
it exports semifinished goods;
it is fully internationalized (export and import);
it is partially internationalized (export or import) and declares tobe involved in “significant and long-lasting relationships withforeign companies”.
Relational GVCs ⇒ strong relationships, high switching cost, highdegree of knowledge exchange and specificity of investment:
belongs to a GVC;
declares to have strong ties with foreign counterparts for trade pur-poses;
highly involved in the conception (R&D) and design for the finalproduct.
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DEA
Retrieve the dependent variable: pure technical efficiency (max out-put given resources and technology)
DEA approach (Charnes et al., 1978): efficiency based on the firm-specific distance from a piece-wise production frontiere (locus oftechnically-efficient input-output combinations).
Allows for variable returns to scale (not all firms are assumed to beoperating at their optimal scale, especially true when dealing withSMEs).
Estimate relative efficiency in a given group of units. Benchmark:all observations in a given year in the belonging sector
Inefficiency as measured by an excessive use of inputs given output(or too little output given inputs).
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Efficiency distribution: GVC vs REL
Non parametric tests (Kruksal and Wallis, 1852) confirmsignificance.
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Efficiency distribution by positioning: GVC vs REL
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Empirical Analysis
GVC participation potentially endogenous: self selection of persis-tently more efficient companies (upward bias)
Econometric analysis on propensity-score matching (PSM).
Focus on the subset of companies with the same ex ante probabilityof being in a GVC and that only differ for actual participation.
Robustness through bootstrapped truncated Simar and Wilson (2007)and Heckman (1979) models.
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Balancing properties
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Baseline results
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Analysis on new entrants
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Conclusions
We explore the effect of GVC participation on firms’ pure efficiency.
Survey data to propose a novel taxonomy of GVC participationmodes.
We take care of endogeneity issues by exploiting PSM and truncated-regression models and show:
significant efficiency premia for firms involved in GVCs;.belonging to a GVC is not, per se, a boost, the type of relationship iscritical;complex and strong inter-firm relationships involving knowledge exchangeprovide the best environment for efficianecy gains;benefits are greater for suppliers;gains take less time to manifest for relational GVCs.
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