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Financial constraints and global value chain participation: Firm-level evidence from India

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  • Ketan Reddy
  • Subash Sasidharan

Abstract

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.

Suggested Citation

  • Ketan Reddy & Subash Sasidharan, 2021. "Financial constraints and global value chain participation: Firm-level evidence from India," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 30(5), pages 739-765, July.
    • Handle: RePEc:taf:jitecd:v:30:y:2021:i:5:p:739-765
    DOI: 10.1080/09638199.2021.1900343
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    Cited by:

    1. Ketan REDDY & Subash SASIDHARAN & Shandre Mugan THANGAVELU, 2024. "Does Economic Policy Uncertainty Impact Firm GVC Participation? Microdata Evidence from India," Working Papers DP-2024-23, Economic Research Institute for ASEAN and East Asia (ERIA).
    2. Thang, Doan Ngoc & Ha, Le Thanh, 2022. "Trade credit and global value chain: Evidence from cross-country firm-level data," International Economics, Elsevier, vol. 171(C), pages 110-129.
    3. Yu, Hui & Li, Huiru, 2023. "How does the global metal industry value network affect industrial structure upgrading ? The perspective of industry chain," Resources Policy, Elsevier, vol. 85(PB).
    4. Calabrese, G.G. & Falavigna, G. & Ippoliti, R., 2024. "Innovation policy and corporate finance: The Italian automotive supply chain and its transition to Industry 4.0," Journal of Policy Modeling, Elsevier, vol. 46(2), pages 336-353.
    5. Du, Wenjing & Fang, Guanfu & Gao, Tiantian & Jiang, Wei, 2023. "Public credit institutions, export activities, and global value chain participation: Evidence from China's credit demonstration city construction program," Economic Modelling, Elsevier, vol. 126(C).
    6. Reddy, Ketan & Sasidharan, Subash, 2023. "Innovative efforts and export market survival: Evidence from an emerging economy," Technological Forecasting and Social Change, Elsevier, vol. 186(PA).

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