Backward and Forward Integration Along Global Value Chains

27 Pages Posted: 19 Nov 2019

See all articles by Davide Del Prete

Davide Del Prete

University of Naples "Parthenope"

Armando Rungi

IMT School for Advanced Studies Lucca, AXES Lab

Date Written: November 1, 2019

Abstract

Backward and forward vertical integrations both shape the organization of Global Value Chains (GVCs). Yet, many studies make the unrealistic assumption that integration decisions are binary and one-directional, i.e., companies make the integration decision only once and they can go either backward or forward but not in both directions. The aim of this paper is to analyze the firm-level organization of GVCs when both vertical integration decisions are taken into account. Exploiting a global sample of more than 1.4 million firms, we first document how midstream parents actually integrate on both directions along the chain, and they are at least as common as downstream and upstream parents. Then, we find that parent companies prefer to integrate production stages with a relatively low elasticity of substitution and with a technological proximity on the supply chain. Finally, we provide evidence that more than one subsidiary in a given location can perform the same production stage.

Keywords: global value chains; vertical integration; property rights theory; multinational enterprises; downstreamness; corporate boundaries.

JEL Classification: F14, F23, D23, G34, L20

Suggested Citation

Del Prete, Davide and Rungi, Armando, Backward and Forward Integration Along Global Value Chains (November 1, 2019). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2019/91. Available at SSRN: https://ssrn.com/abstract=3489047 or http://dx.doi.org/10.2139/ssrn.3489047

Davide Del Prete (Contact Author)

University of Naples "Parthenope" ( email )

Via generale parisi
Naples, Naples 80133
Italy

Armando Rungi

IMT School for Advanced Studies Lucca, AXES Lab ( email )

Piazza S. Francesco 19
Lucca, IT-55100
Italy

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