What matters for firms? participation in Global Value Chains in Central and East European countries?

Andrzej Cieślik,Krzysztof Szczygielski,Jan Jakub Michałek

doi:10.24136/eq.2019.023

Abstract

Research background: There has been an extensive body of literature on the growing importance of global value chains (GVCs) in developed and emerging economies. This literature argues that GVCs significantly affect international trade patterns and open new possibilities for participating economies to increase both their exports? quantity and quality, acquire advanced production technologies and improve the overall economic performance. However, the empirical evidence from the Central and East European (CEE) countries, especially at the firm level is still relatively scarce. The majority of existing empirical studies on GVCs in the CEE countries are based on sectoral input-output data. Purpose of the article: In this article, we study the determinants of firm participation in GVCs using firm-level BEEPS data for 29 CEE countries. We hypothesize that larger, foreign-owned, more productive and innovative firms producing a limited range of products and employing skilled workers are more likely to be involved in GVCs. Methods: The intensity of participation in GVCs is measured by the usage of imported inputs and the intensity of exports. The empirical study uses the BEEPS firm-level data set for the period 2011?2014 and the probit estimation method. Findings & Value added: The assembled empirical evidence generally supports these hypotheses. In addition, we find that firms which participate in GVCs pro-duce a smaller range of products, which means that they concentrate on their core competencies. In particular, we find that the EU membership may facilitate participation in GVCs, especially for smaller firms in the CEE countries. This article adds to the existing literature by examining the firm-level determinants of participation in GVCs using the cross-country firm-level survey conducted by the EBRD and the World Bank.

Highlights

The emergence of global value chains (GVCs) significantly affected the landscape of the international organization of production, placing the specialization of countries and individual firms within GVCs at the center of economic analysis
We hypothesize that larger, foreignowned, more productive and innovative firms producing a limited range of products and employing skilled workers are more likely to be involved in GVCs
Small firms are defined as entities employing up to 20 persons, while the large firms over 21.6 in column (6) we show estimation results for the European Union (EU) firms only for the benchmark 10 per cent threshold

Summary

Introduction

The emergence of GVCs significantly affected the landscape of the international organization of production, placing the specialization of countries and individual firms within GVCs at the center of economic analysis. Technological progress, the decrease in trade costs and barriers to entry allowed for the decomposition of production processes into various segments (Johnson & Noguera, 2017) These segments correspond to particular tasks (i.e. design, parts procurement, assembly, distribution) that are relocated, within and across national borders, to the locations where these tasks can be performed more efficiently. In the last two decades, several new member states (NMS) of the European Union (EU) such as the Czech Republic, Slovakia, Hungary and Poland managed to integrate themselves into European supply chains due to cultural similarity, geographical proximity and labor costs differentials, (IMF, 2013) This allowed the NMS to reindustrialize their economies after a rapid decline in the industrial output in the early period of economic transition (Stollinger, 2016; Cerovic et al, 2014). The paper ends with conclusions and directions for future studies

Literature review

Results

Conclusions