Internalizing Global Value Chains: A Firm-Level Analysis

62 Pages Posted: 21 Sep 2015

See all articles by Laura Alfaro

Laura Alfaro

Harvard University

Pol Antras

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Davin Chor

Dartmouth College - Tuck School of Business; National University of Singapore (NUS) - Department of Economics

Paola Conconi

Centre for Economic Policy Research (CEPR); Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

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Date Written: September 2015

Abstract

In recent decades, technological progress in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. Building on Antras and Chor (2013), we describe a property-rights model of firm boundary choices along the value chain. To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage. Our results suggests that contractual frictions play an important role in shaping the integration choices of firms around the world.

Keywords: global value chains, incomplete contracts, sequential production

JEL Classification: D23, F14, F23, L20

Suggested Citation

Alfaro, Laura and Antras, Pol and Chor, Davin and Conconi, Paola, Internalizing Global Value Chains: A Firm-Level Analysis (September 2015). CEPR Discussion Paper No. DP10837, Available at SSRN: https://ssrn.com/abstract=2663435

Laura Alfaro (Contact Author)

Harvard University ( email )

Cambridge, MA 02138
United States

Pol Antras

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Davin Chor

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
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National University of Singapore (NUS) - Department of Economics ( email )

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Paola Conconi

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

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