Global Value Chains and Industrial Productivity : The Case of India

Using data on Indian manufacturing firms for 1999-2019, the paper examines whether participation in global value chains (GVCs) by manufacturing firms in India raises their productivity. GVC participation by industrial firms involves exporting products along with importing intermediate inputs, combined in some cases with outward foreign direct investment, and this is expected to have a positive effect on firm productivity. The impact of GVC participation on total factor productivity is estimated by applying two methodologies for assessing treatment effects, including a more sophisticated one that allows for treatment effect heterogeneity. Two alternate definitions of GVC participation by firms are used, one of which uses cluster analysis. The results of the analysis reveal that the participation in GVCs by manufacturing firms in India has a significant positive effect on their total factor productivity. While even limited or low-depth participation in GVCs significantly enhances the total factor productivity of manufacturing firms in India, an elevation of the level of GVC participation to intermediate depth and high integration leads to further gains in total factor productivity. Another important finding emerging from the analysis is that the effect of GVC participation on total factor productivity is relatively higher for firms in the medium- and high-technology industries than for firms in the low-technology industries