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The Effects of Global Value Chains on Global Firm Performance

Co-author(s)
Jean Baptiste Habyarimana, Fidele Mutemberezi, Joseph Ndagijimana, Faustin Maniraguha

Whether global value chain development and diffusion stimulate global firm performance is one of the most critical research questions in international economics and trade. However, measuring global value chains remains challenging. The literature has mainly attributed this challenge to the lack of a consistent approach that captures the convergence between microeconomic and macroeconomic indicators to measure global value chains. Due to the lack of a consistent approach that combines microeconomic and macroeconomic indicators to measure global value chains, the distribution of gains under global value chains across firms, countries, and continents has yet to be measured. Also, little is known about the effect of a measure of global value chains that combines macroeconomic and macroeconomic indicators on global firm performance. To contribute to knowledge and policy discussions, we construct a global value chains index based on macroeconomic and macroeconomic indicators and investigate its impact on global firm performance. We use microeconomic data from the World Bank Enterprise Surveys conducted between 20006 and 2023, covering 152 countries worldwide and macroeconomic data obtained from the World Bank open dataset for macroeconomic indicators. First, we find that the constructed global value chains index level is highly heterogeneous across firms' economic sectors, size levels, and continental localities. Second, evidence from the pooled Driscoll and Kraay and the generalised method of moments estimators reveals that improvements in the level of the constructed global value chains index are significantly associated with significant improvements in global firm performance. This study suggests that implementing policies to improve global value chain development and diffusion supported by technological progress (e-commerce) and stable exchange (exchange rate) rates would play a crucial role in improving and ensuring the sustainable performance of firms across countries.