Financial Constraints and Global Value Chain Participation: Firm-Level Evidence from India

TY - JOUR

T1 - Financial Constraints and Global Value Chain Participation: Firm-Level Evidence from India

AU - Reddy, Ketan

AU - Sasidharan, Subash

PY - 2021/3/17

Y1 - 2021/3/17

N2 - This paper explores the relationship between financial constraints and firm participation in global value chains (GVC). We use a rich firm-level data belonging to the Indian manufacturing sector for the period 2001–2016. Controlling for endogeneity and sample selection bias, our empirical outcome reveals a negative impact of financial constraint on firm GVC participation. We also find that inter-firm trade credit fosters firm participation in GVCs. Our findings also highlight that firms dependent on external finance find it challenging to participate in GVCs. Further, sub-sample analysis shows a significant effect of financial constraints in the case of small firms. Finally, we find that firms that are relatively more financially constrained are more likely to become a part of GVC (GVC starters) during the study period. Our findings have strong policy implication on the lines of promoting GVC participation for Indian manufacturing firms and hence remains of interest for policymakers.

AB - This paper explores the relationship between financial constraints and firm participation in global value chains (GVC). We use a rich firm-level data belonging to the Indian manufacturing sector for the period 2001–2016. Controlling for endogeneity and sample selection bias, our empirical outcome reveals a negative impact of financial constraint on firm GVC participation. We also find that inter-firm trade credit fosters firm participation in GVCs. Our findings also highlight that firms dependent on external finance find it challenging to participate in GVCs. Further, sub-sample analysis shows a significant effect of financial constraints in the case of small firms. Finally, we find that firms that are relatively more financially constrained are more likely to become a part of GVC (GVC starters) during the study period. Our findings have strong policy implication on the lines of promoting GVC participation for Indian manufacturing firms and hence remains of interest for policymakers.

U2 - 10.1080/09638199.2021.1900343

DO - 10.1080/09638199.2021.1900343

M3 - Article

VL - 30

SP - 739

EP - 765

JO - The Journal of International Trade & Economic Development

JF - The Journal of International Trade & Economic Development

IS - 5

ER -