Domestic Value Chains as Stepping Stones to Global Value Chain Integration

28 Pages Posted: 16 Apr 2019

See all articles by Cosimo Beverelli

Cosimo Beverelli

World Trade Organization (WTO); European University Institute

Victor Stolzenburg

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Robert B. Koopman

World Trade Organization (WTO) - Economic Research and Analysis Division

Simon Neumueller

Graduate Institute of International and Development Studies

Date Written: May 2019

Abstract

Identifying the determinants of global value chain (GVC) integration is essential to understand the past expansion and current slowdown in GVCs. In this paper, we study the role of domestic value chains (DVCs) for GVC integration. In the presence of industry‐specific fixed costs of fragmenting production and of switching across input suppliers, DVCs can either be stepping stones or stumbling blocks for subsequent GVC entry. Focusing on backward linkages, that is, the sourcing of intermediates, we provide robust empirical evidence in favour of the stepping‐stone hypothesis. In our benchmark specification, a one standard deviation increase in DVC integration raises subsequent GVC integration by about 0.4%. To identify the mechanisms at work, we exploit two dimensions of industry‐level heterogeneity: product differentiation (a proxy of fragmentation costs) and relationship specificity (a proxy of the costs of switching between suppliers). We find that DVC integration is less conducive to GVC integration in industries that are characterised by relatively high switching costs and relatively low fragmentation costs.

Keywords: Domestic value chains, Global value chains, Input–output linkages

Suggested Citation

Beverelli, Cosimo and Stolzenburg, Victor and Koopman, Robert B. and Neumueller, Simon, Domestic Value Chains as Stepping Stones to Global Value Chain Integration (May 2019). The World Economy, Vol. 42, Issue 5, pp. 1467-1494, 2019. Available at SSRN: https://ssrn.com/abstract=3372534 or http://dx.doi.org/10.1111/twec.12779

Cosimo Beverelli (Contact Author)

World Trade Organization (WTO) ( email )

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European University Institute ( email )

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Firenze (Florence), Tuscany 50014
Italy

Victor Stolzenburg

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Villa La Fonte, via delle Fontanelle 18
50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Robert B. Koopman

World Trade Organization (WTO) - Economic Research and Analysis Division ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

Simon Neumueller

Graduate Institute of International and Development Studies ( email )

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Chemin Eugène-Rigot 2
Geneva, CH-1202
Switzerland

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