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  • 2017
  • Working Paper
  • HBS Working Paper Series

Internalizing Global Value Chains: A Firm-Level Analysis

By: Laura Alfaro, Pol Antràs, Davin Chor and Paola Conconi
  • Format:Print
  • | Language:English
  • | Pages:43
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Abstract

In recent decades, advances in information and communication technology and falling trade barriers have led firms to retain within their boundaries and in their domestic economies only a subset of their production stages. A key decision facing firms worldwide is the extent of control to exert over the different segments of their production processes. We describe a property-rights model of firm boundary choices along the value chain that generalizes Antras and Chor (2013). To assess the evidence, we construct firm-level measures of the upstreamness of integrated and non-integrated inputs by combining information on the production activities of firms operating in more than 100 countries with Input-Output tables. In line with the model's predictions, we find that whether a firm integrates upstream or downstream suppliers depends crucially on the elasticity of demand for its final product. Moreover, a firm's propensity to integrate a given stage of the value chain is shaped by the relative contractibility of the stages located upstream versus downstream from that stage, as well as by the firm's productivity. Our results suggest that contractual frictions play an important role in shaping the integration choices of firms around the world.

Keywords

Global Value Chains; Sequential Production; Incomplete Contracts; Demand and Consumers; Customer Value and Value Chain; Globalization

Citation

Alfaro, Laura, Pol Antràs, Davin Chor, and Paola Conconi. "Internalizing Global Value Chains: A Firm-Level Analysis." Harvard Business School Working Paper, No. 16-028, September 2015. (Updated October 2017. See Online Appendix. Also NBER Working Paper 21582. Forthcoming in the Journal of Political Economy.)
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About The Author

Laura Alfaro

General Management
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Related Work

    • 2017
    • Faculty Research

    Internalizing Global Value Chains: A Firm-Level Analysis

    By: Laura Alfaro, Pol Antràs, Davin Chor and Paola Conconi
    • April 2019
    • Journal of Political Economy

    Internalizing Global Value Chains: A Firm-Level Analysis

    By: Laura Alfaro, Pol Antràs, Davin Chor and Paola Conconi
Related Work
  • Internalizing Global Value Chains: A Firm-Level Analysis By: Laura Alfaro, Pol Antràs, Davin Chor and Paola Conconi
  • Internalizing Global Value Chains: A Firm-Level Analysis By: Laura Alfaro, Pol Antràs, Davin Chor and Paola Conconi
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