Trade networks and the productivity of MENA firms in global value chains

Abstract

Global Value Chain (GVC) participation is typically associated with a productivity premium, yet similar firms can benefit differently depending on the possibility for creating production linkages offered by their countries’ involvement in trade. We show that country-sector intermediate trade network centrality is also positively associated with firms’ productivity, suggesting that the connectivity of the business environment may enhance productivity on top of direct firm-level involvement in GVCs. For a large cross-section of MENA countries included in the World Bank Enterprise Surveys (WBES), we find evidence of productivity premia using several firm-level GVC participation measures and network centrality indicators constructed from the EORA input-output tables. Centrality is also positively associated with firms’ productivity, adding to the direct effect of GVC participation. Our results are confirmed using OLS, multi-level models, Propensity Score Matching techniques, and a Shift-Share instrumental variable approach which help addressing endogeneity issues.