Date: 2014
Type: Other
Global supply chains and international competitiveness
EUI RSCAS PP, 2014/04, Global Governance Programme, Global Economics
ALTOMONTE, Carlo, RUNGI, Armando, Global supply chains and international competitiveness, EUI RSCAS PP, 2014/04, Global Governance Programme, Global Economics - https://hdl.handle.net/1814/31367
Retrieved from Cadmus, EUI Research Repository
The emergence of global supply chains, that is the organization of production processes in factories that are part of a network of suppliers located in different countries and specialized in specific production phases, brings about a number of major changes in the way the global economy works and interacts. To explore more in detail this phenomenon from a microeconomic perspective, in this paper we provide evidence on Business Groups, that is network-like forms of hierarchical organization between legally autonomous firms spanning both within and across national borders. Exploiting a unique dataset of 270,474 headquarters controlling more than 1,500,000 (domestic and foreign) affiliates in all countries worldwide, we find that business groups account for a significant part of value-added generation in both developed and developing countries, with a prevalence in the latter. In order to characterize their boundaries, we introduce an entropy-like metric able to summarize the hierarchical complexity of a group and its trade-off between exploitation of knowledge as an input across the hierarchy and the associated communication costs. When relating these metrics to the performance of affiliates across business groups, we find a robust (albeit non-linear) positive relationship between a group’s hierarchical complexity and productivity which dominates the already known correlation between vertical integration and productivity. Results are in line with the theoretical framework of knowledge-based hierarchies developed by the literature, in which intangible assets are a complementary input in the production processes.
Cadmus permanent link: https://hdl.handle.net/1814/31367
ISSN: 1830-1541
Series/Number: EUI RSCAS PP; 2014/04; Global Governance Programme; Global Economics
Keyword(s): Supply chains Hierarchies Business groups Property rights Organization of production Productivity
Other topic(s): Trade, investment and international cooperation