Global Value Chains, Innovation, and Performance: Firm-Level Evidence from the Great Recession

Transcription

1 Global Value Chains, Innovation, and Performance: Firm-Level Evidence from the Great Recession Emanuele Brancati 1, Raffaele Brancati 2, and Andrea Maresca 2 1 LUISS Guido Carli and MET 2 MET December 11, 2015 Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 1 / 23

2 Motivation Nature of international trade has changed over the past few decades: trade in goods vs. trade in tasks. Production increasingly fragmented into a large number of sequential stages coordinated in GVCs. Whether the firms participation in GVCs fosters innovativeness and performance has critical implications for economic growth: GVC literature: role of inter-firm connections for knowledge flows. Papers on the Great Recession: global networks acted as a transmission channel of the crisis. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 2 / 23

3 Research Question Explore behavior and performance of GVCs in the aftermath of the Great Recession: both strategies (extensive and intensive margins of innovation, R&D, and export) and real outcome (productivity and sales growth). Exploit a newly available Italian survey (MET) to design a comprehensive taxonomy of GVC involvement. Emphasize heterogeneities across GVC participation modes. Provide some insights on the shock experienced in times of crisis. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 3 / 23

4 Related Literature Literature on vertical specialization and fragmentation of the production processes: Findlay (1978), Grossman and Rossi-Hansberg (2006), Markusen and Venables (2007), Antras and Chor (2013), among others. Different perspective: GVC approach (Gereffi and Korzeniewicz, 1994; Gereffi, 1999; Humphrey and Schmitz, 2002). Emphasis: opportunity for local producers to learn from global leaders along the chain (spillover of expertise and knowledge). Upgrading relates to the improvement of the firms position along the chains. The concept of governance is central: the system of relationships in a GVC affects both innovativeness and performances. Gereffi et al. (2005) classify governance based upon: complexity of the transaction; degree of codifiability; capability of the firms. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 4 / 23

5 Empircal Evidence Evidence at the micro level is still underwhelming: large number of papers on case studies or sectorial analyses. At the micro level: Pietrobelli and Saliola (2008), Saliola and Zanfei (2009), Baldwin and Yan (2014). Italian literature mainly related to outsourcing, offshoring and export (Chiarvesio et al., 2010; Accetturo et al., 2011; Giunta et al., 2012; Agostino et al., 2014 ; Giovannetti et al., 2015). Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 5 / 23

6 Literature in the Great Recession Baldwin (2009) relates value-chain linkages with the synchronization of adverse shocks across countries: the reduction in the final demand for goods decreased orders backwards along the GVCs. Bems et al. (2011) and Alessandria et al. (2011) who point at vertical specialization and inventory adjustments as potential channels of transmission of international downturns Bekes et al (2011) and Accetturo and Giunta (2015) explore heteroegeneities across the firms position in a value chain. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 6 / 23

7 Contributions Improve upon studies at the cluster/sector level by taking advantage of micro data on the entire economy (also micro-sized companies). Propose a novel approach to identify GVCs and their participation modes (complex phenomena require complex proxies). Study several dimensions of the firms activity: strategies and performance. Contribute to the debate on the Great Recession period; insights on the nature of the shock experienced by GVCs in the aftermath of the trade collapse. Employ panel techniques to deal with critical econometric issues in the GVC approach. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 7 / 23

8 Main Results Firms involved in GVCs are, on average, more innovative and display better performances. Effect highly non homogeneous: relational GVCs have a 4-to- 6% higher probability of innovating and undertaking R&D projects, while other forms of GVC participation have no significant premium. Belonging to GVCs also boosts the exporting probability of previously non-internationalized companies (more homogeneous effect). We document similar effects for the intensive margins, on productivity and sales growth. A diff-in-diff exercise shows relevant demand shocks for GVCs. Relational value chains were somewhat sheltered from the negative effects of the crisis. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 8 / 23

9 GVC participation A firm is considered to belong to a GVC if (at least) one of the following conditions occurs: it exports semifinished goods; it is fully internationalized (export and import); it is partially internationalized (export or import) and declares to be involved in significant and long-lasting relationships with foreign companies. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 9 / 23

10 GVC Participation Modes (Forms of Governance) Taxonomy in the spirit of Humphrey and Schmitz (2002) and Gereffi et al. (2005) based on: Firm capability: companies need skills not only to handle the expertise they already have, but also to access external sources of knowledge (higher autonomy). Degree of subordination: subordinated suppliers have no incentives for the transmission of innovative ideas upwards. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 10 / 23

11 GVC Participation Modes (Forms of Governance) We employ info on: affiliation to corporate groups, long lasting and significant relationships for trade purposes, degree of participation in the conception of the final product. Arm length: no long-lasting trade relationships. Hierarchical: subsidiaries of corporate groups. Quasi-Hierarchical: long-lasting trade relationships + low participation in the conception of the final product. Relational: long-lasting trade relationships + high participation in the conception of the final product. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 11 / 23

12 Empirical Methodology (baseline) Baseline specification: probit model with Mundlak correction P r(y it = 1) = Φ ( α V C it 1 + β X it 1 + λ t + Γ i + c i + u it ) Y: Innovation (product or process), R&D, Export. Γ i : industry (12), region (20), and province (110) controls. X i,t 1 : size, age, sales, cash flow, market share, vertical integration, productivity, network, group, human capital, (R&D, export). Heteroskedasticity consistent standard errors. Econometric issues: Reverse causality Lagged variables to rule out simultaneity bias. Robust to the subsample Y i,t 1 = 0 or to AR(1) processes. Robust to conditional logistic and within estimators (firm&time FE). DPD techniques, two-step system-gmm (Arellano-Bover, 1995; Blundell- Bond, 1998). Self selection CEM techniques. Controls for correlated shocks: time FE specific for industry and region. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 12 / 23

13 Data MET survey on the Italian industry: Four-waves survey: 2008, 2009, 2011, and Roughly 25,000 observations per wave, representative at size (all classes), region, and industry levels. Rich set of information including: purchasing/selling matrix, type of good sold & purchased, inter-firm networks, participation to the design of the final product, R&D, innovation, export, etc. Firm-level balance-sheet data: Cribis D&B. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 13 / 23

14 Summary Statistics Variable Type Mean Std. Min Max GVC Dummy Arm-length Dummy Quasi-hierarchy Dummy Hierarchy Dummy Relational Dummy Innovation R&D GVC = % 9.76% GVC = % 34.0% Arm-length = % 16.9% Quasi-hierarchy = % 23.4% Hierarchy = % 27.6% Relational = % 40.2% Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 14 / 23

15 Results: Extensive Margins 1 Sample: Entire Y t 1 = 0 Y: Innovation t R&D t Innovation t R&D t Export t (1) (2) (3) (4) (5) GVC t *** 0.031** 0.066*** 0.069*** 0.186*** Size t *** 0.023*** 0.044*** 0.035*** 0.016** Age t ** Sales t *** *** *** Cash flow t ** 0.089* Market share t Vertical integration t ** 0.039** Network t *** 0.059*** 0.093*** 0.068*** *** Group t *** Human capital t *** 0.047*** 0.148*** 0.119*** Export t *** 0.119*** 0.041*** 0.044*** R&D t *** 0.181*** Controls Time yes yes yes yes yes Industry (12) yes yes yes yes yes Region (20) yes yes yes yes yes Province (110) yes yes yes yes yes Mundlak correction yes yes yes yes yes µ(gvc) 0.055*** 0.089*** *** # obs Pseudo-R Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 15 / 23

16 Results: Extensive Margins 2 Sample: Entire Y t 1 = 0 Y: Innovation t R&D t Innovation t R&D t Export t (1) (2) (3) (4) (5) Arm-length t *** Quasi-hierarchy t *** Hierarchy t * Relational t *** 0.037*** 0.059*** 0.055*** 0.181*** Controls Time yes yes yes yes yes Industry (12) yes yes yes yes yes Region (20) yes yes yes yes yes Province (110) yes yes yes yes yes Mundlak correction yes yes yes yes yes µ(arm-length) 0.029* * *** µ(quasi-hierarchy) *** µ(hierarchy) *** µ(relational) *** *** 0.358*** # obs Pseudo-R Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 16 / 23

17 Controlling for Unobserved Heterogeneity Y: Innovation t R&D t Export t (1) (2) (3) (4) (5) (6) Arm-length t *** Quasi-hierarchy t *** *** 2.681*** Hierarchy t * 1.689** Relational t *** 0.439* 0.029*** 0.676** 0.143*** 3.352*** Fixed effects Time yes yes yes yes yes yes Firm yes yes yes yes yes yes # obs R Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 17 / 23

18 Intensive Margins Tobit models with Mundlak correction Share of sales from innovative products (new for the firm or for the market). Expenditure in R&D as a share of sales. Share of sales from exported products. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 18 / 23

19 Results: Intensive Margins Sample: Entire Y: %Prod P t %Prod S t %R&D t %Exp t (1) (2) (3) (4) Arm-length t *** 7.547*** Quasi-hierarchy t *** Hierarchy t ** *** Relational t *** 3.549* 1.389*** 9.051*** Controls Time yes yes yes yes Industry (12) yes yes yes yes Region (20) yes yes yes yes Province (110) yes yes yes yes Mundlak correction yes yes yes yes µ(arm-length) *** µ(quasi-hierarchy) *** 38.99*** µ(hierarchy) ** 3.024** 3.182* µ(relational) 34.89*** 21.92*** 9.281*** 42.81*** # obs Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 19 / 23

20 Diff-in-Diff Within estimator for performance variables: long panel of productivity and sales growth ( ). Assume pre-crisis stability of GVC participation: project 2008 GVC proxy backwards. Mis-measuring: companies exiting GVC before 2008 (unlikely given the relatively low domestic demand): 5% increase in the number of exporters. firms entering into a GVC right before Errors mainly related to the second group: highly productive firms (actually involved in GVCs) grouped with less productive companies who engaged in international linkages only in a later time. Given the productivity gap between internationalized and domestic companies (Melitz, 2003; among many others), likely to have a downward bias for pre-crisis coefficient. Any negative shock can be interpreted as a lower bound. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 20 / 23

21 Results: Productivity Growth Y: Log-productivity t τ: Pre-crisis Crisis Pre-crisis Crisis (1) (2) GVC t 1 1I(τ) *** *** Arm-length t 1 1I(τ) Quasi-hierarchy t 1 1I(τ) Hierarchy t 1 1I(τ) Relational t 1 1I(τ) *** *** Fixed effects Time yes yes Firm yes yes # obs R Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 21 / 23

22 Results: Sales Growth Y: Log-sales t τ: Pre-crisis Crisis Pre-crisis Crisis (1) (2) GVC t 1 1I(τ) *** Arm-length t 1 1I(τ) *** Quasi-hierarchy t 1 1I(τ) *** Hierarchy t 1 1I(τ) Relational t 1 1I(τ) 0.105*** *** Fixed effects Time yes yes Firm yes yes # obs R Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 22 / 23

23 Conclusions We explore behavior and performance of GVC participants in the aftermath of the Great Recession. Take advantage of a newly-available survey to propose a novel taxonomy of GVC participation modes. We document upgrading premia for firms involved in GVCs, but mainly confined to relational suppliers. We document severe demand shocks induced by the Great-Trade Collapse of 2009, with relational GVCs that were somehow shielded from the effects of the crisis. Emanuele Brancati (LUISS - MET) GVCs, Innovation, and Performance Global Value Chains 23 / 23