Global Value Chains and Productivity: Micro Evidence from Estonia

IMF Working Papers, July 3, 2020

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The COVID-19 pandemic has led to an unprecedented collapse in global economic activity and trade and has highlighted the role played by global value chains (GVC), with countries facing shortages of components vital to everything from health systems to everyday household goods.
Despite vulnerabilities associated with increased interconnectedness, GVCs have contributed to increasing productivity and long-term growth.
This study empirically explores the impact of GVC participation on productivity in Estonia using firm-level data from 2000 to 2016.
Main reported conclusion: higher GVC participation at the industry level significantly boosts productivity at both the industry and the firm level.

Higher GVC participation at the industry level significantly boosts productivity at both the industry and the firm level.
Frontier firms, large firms, and exporting firms benefit more from GVC participation than:
- non-frontier firms,
- small firms,
- non-exporting firms.
GVC participation of downstream industries has a negative correlation with productivity.
Heterogeneous upstream/downstream effects:
- Frontier firms and large firms benefit more from GVC participation of upstream industries.
- Non-frontier firms and small firms benefit more from GVC participation of downstream industries.

Policies designed to promote participation in GVCs are important to raise aggregate productivity and potential growth in Estonia.
Targeting measures to enhance firm connectivity in upstream GVCs may particularly benefit frontier and large firms.
Consider complementary measures for non-frontier and small firms to capture benefits from downstream GVC participation.

Title: Global Value Chains and Productivity: Micro Evidence from Estonia
Authors: Hang T. Banh, Philippe Wingender, Cheikh A. Gueye
Date: July 3, 2020
DOI: https://doi.org/10.5089/9781513542300.001
ISBN: 9781513542300
ISSN: 1018-5941
Stock No: WPIEA2020117
Subjects: Exports, Global value chains, Globalization, Industrial productivity, International trade, Labor productivity, Production, Productivity
Keywords: capital intensity, dependent variable, export firm, Exports, firm level, Global, global value chains, GVC buyer, GVC participation, GVC supplier, Industrial productivity, industry level, industry productivity growth, Labor productivity, participation measure, production function, productivity, trade, WP

IMF Working Paper No. 2020/117 — Hang T. Banh, Philippe Wingender, Cheikh A. Gueye (July 3, 2020).