Trade Facilitation and Global Value Chain Participation: Cross-country Analysis

Abstract

In this article, we examine the role of trade facilitation in fostering firm participation in global value chains (GVCs). We use cross-sectional data for 115 economies spanning 2006–2018 sourced from World Bank Enterprise Surveys. We employ four trade indicators which are as follows: customs, regulation quality, loans and digitalization proxying for trade facilitation measures and we correct for reverse causality using the instrumental variable approach. Our empirical findings highlight that customs requirements deter GVC participation of the firm. Further, adhering to government regulations, having access to loans and digital communication adoption fosters supply chain integration of the firm. The present study also finds favourable heterogenous effects of trade facilitation on GVC participation of less productive firms and larger firms. Our findings are robust to alternative methods of endogeneity correction and GVC definitions.JEL Codes: F1, F19, F14