GLOBAL VALUE CHAIN PARTICIPATION AND FIRMS’ PERFORMANCE DURING THE GREAT RECESSION

Abstract

Started at the end of 2008, the Great Recession has been the most severe economic crisis the world has experienced since World War II. In volume terms, world gross domestic product (GDP), exports and imports fell by 2.3%, 12.2% and 12.9% respectively, while the European Union (EU) countries were even more affected by the crisis, recording a reduction of 4.2% in GDP, 14.8% in exports and 14.5% in imports (WTO, 2010). Looking at Eurostat data, Landini et al. (Landini, Arrighetti, & Lasagni, 2015) signal that the number of active manufacturing companies in the Eurozone has decreased by 7% between 2008 and 2012. Countries located in the Eurozone periphery have been hit particularly hard by the crisis, with Italy and Spain recording a reduction in the number of active firms between 6% and 9%. The drop of manufacturing companies has been even bigger, concerning the 9% of Italian enterprises and the 17% of the Spanish ones. In such context, the main purpose of this work is to investigate what happened to firms, taking into account their performance in relation to a crucial aspect of their internationalization and organizational strategies: their involvement in global value chains (GVCs). The latter consists in a phenomenon acknowledged as being one of the most pervasive changes the world economy has experienced since the last decades of the 20th century (Krugman, 1995), fostered by the spread of the new Information and Communication Technologies (ICTs), which have led to globalization’s second unbundling (R. Baldwin, 2011). Connecting technologies in transportation and communication, together with lower trade and investment barriers and liberalized domestic markets (Amador & Cabral, 2016) have allowed for production processes to be more and more fragmented, organized among various firms, belonging to the same group or independent from one another, not necessarily located in the same country. In other words, the value chains (Porter, 1985) – consisting in the series of tasks needed to bring a product or a service from its conception to its final use – have become global. The development of international production networks has had several implications in macroeconomic terms, such as redefining national competitive advantages (Cheng, Rehman, Seneviratne, & Zhang, 2015) – since competition occurs more and more at the task level (R. Baldwin & Robert-Nicoud, 2014) – or intensifying the 2008-2009 big trade collapse (R. Baldwin, 2009). The first chapter of this work is dedicated at carrying out a systematization of the literature analysing firms’ participation to and positioning within global value chains and their implications for companies’ performance. Such review appeared necessary in order to prepare for the empirical works carried out in chapters two and three, especially given the fact that the research studying GVCs at the firm level faces several challenges. These are mainly due to the lack of good quality micro data, which have led to a fragmented production of articles relying on a number of different data sources and applying various indicators in order to account for companies’ engagement in international production networks. Thus, in its core sections, chapter one illustrates how firms’ GVC participation and positioning have been measured so far in the literature, it tackles the issue of how to evaluate the governance of international production networks - that is to say the nature of the relationships linking the GVC players - and, finally, it attempts at summarizing the insights concerning firms’ performance and growth in relation to their engagement in global value chains and to the mechanisms that govern them. The literature generally agrees on companies participating to international production networks as performing better than non-participants (e.g. J. Baldwin & Yan, 2014; Veugelers, Barbiero, & Blanga-Gubbay, 2013), while firms located in an intermediate position along the chain, i.e. selling to other companies, usually show a worse performance with respect to those producing for the final market (e.g. Accetturo & Giunta, 2017; Agostino, Giunta, Scalera, & Trivieri, 2016). However, the performance indicators researchers commonly focus on are usually those referring to firms’ productivity (both total factor productivity and labour productivity), with other variables sometimes taken into account,such as companies’ sales growth or their intensive margin of trade. In the second and the third chapters of this work, we carry out two empirical investigations to assess whether and how GVC participation and positioning are related to companies’ performance, looking at aspects that have not been much investigated so far. In fact, in chapter 2 we focus on firms’ ability to survive the Great Recession and stay in the market, while chapter 3 takes into account those companies having endured the crisis and analyses the employment variation they have experienced. More specifically, chapter 2 looks at the relation between companies’ engagement in international production networks and their probability to survive during the Great Recession. Again, this has been the topic of few research, with literature on firms’ survival mainly focusing on the role of age and size (e.g. Dunne, Roberts, & Samuelson, 1988; Jovanovic, 1982; Sutton, 1997). In a recent work, Meliciani and Tchorek (2017) attempt at assessing whether firms involved in GVCs had higher or lower chances to exit the market during the recent economic crisis, but they do not do so by resorting to an indicator of GVC participation or positioning. We focus on the survival patterns of companies located in France, Germany, Italy and Spain, whose data are retrieved from the EFIGE database. We implement an empirical investigation strategy based on measures of GVC participation modes built by restricting the scope of those identified by Veugelers et al. (2013), while GVC positioning is accounted for by looking at the share of turnover originated from selling produced-to-order goods to other companies, as done, for instance, in Accetturo et al. (Accetturo, Giunta, & Rossi, 2011). Our investigation strategy is based first on probit models, then repeated relying on duration models, specifically on the Cox one. We find that engagement in international production networks did not play a role in increasing or decreasing firms’ survival, as GVC participants appear to have no significant advantage or disadvantage with respect to exclusively domestic companies. However, in line with the literature signalling the performance gap of intermediate firms, we observe that the latter were actually more likely to fail during the crisis. As anticipated, in chapter 3 we take into account those firms having managed to survive the Great Recession, investigating whether the employment variation they have experienced between 2008 and 2014 is related to their engagement into GVCs. To the best of our knowledge, there is almost no evidence linking enterprises’ involvement in international production networks and employment growth at the company level. In fact, the literature on firms’ growth usually takes into account variables such as size and age (e.g. Barba Navaretti, Castellani, & Pieri, 2014; Grazzi & Moschella, 2017), while, for instance, another strand of research looks at the employment variation generated by companies’ internationalization strategies linked to the development of international production networks, such as offshoring (e.g. Hijzen & Swaim, 2007). In our research, we rely again on EFIGE data for French, German, Italian and Spanish firms and we resort to the same GVC participation and positioning measures applied in chapter 2. First, we estimate the relation between companies’ involvement in international production networks and their employment growth by running OLS regressions and quantile regressions. Results indicate a significant and positive association between GVC participation (one-way and two-way modes) and employment growth at the firm level, while three-mode engagement in international production networks appears relevant in terms of increase in labour force only for those firms having recorded highest employment growth rates. Afterwards, we try to single out the impact of GVC participation on firms’ employment variation rates by borrowing from the impact evaluation analysis techniques and applying the propensity score matching. By doing so, we are able to compare companies that are very similar under several aspects, except for their involvement in global production networks. Our results confirm a positive impact of GVC participation on firms’ employment growth.