Hang T. Banh, Mr. Philippe Wingender, and Cheikh A. Gueye
The COVID-19 pandemic has led to an unprecedented collapse in global economic activity and trade. The crisis has also highlighted the role played by global value chains (GVC), with countries facing shortages of components vital to everything from health systems to everyday household goods. Despite the vulnerabilities associated with increased interconnectedness, GVCs have also contributed to increasing productivity and long-term growth. We explore empirically the impact of GVC participation on productivity in Estonia using firm-level data from 2000 to 2016. We find that higher GVC participation at the industry level significantly boosts productivity at both the industry and the firm level. Frontier firms, large firms, and exporting firms also benefit more from GVC participation than non-frontier firms, small firms, and non-exporting firms. We also find that GVC participation of downstream industries has a negative correlation with productivity. Frontier firms and large firms benefit more from GVC participation of upstream industries, while non-frontier firms and small firms benefit more from GVC participation of downstream industries. Our results suggest that policies designed to promote participation in GVCs are important to raise aggregate productivity and potential growth in Estonia.
Advanced economies have been witnessing a pronounced slowdown of productivity growth since the global financial crisis that is accompanied in recent years by a withdrawal from trade integration processes. We study the determinants of productivity slowdown over the past two decades in four closely integrated European countries, Austria, Denmark, Germany and the Netherlands, based on firm-level data. Participation in global value chains appears to have affected productivity positively, including through its effect on TFP when facilitated by higher investment in intangible assets, a proxy for firm innovation. Other contributors to productivity growth in firms are workforce aging, access to finance, and skills mismatches.
In the 1990s, widespread investment in information technology (IT) boosted U.S. labor productivity growth and contributed to the country’s economic dynamism. At a March 11 discussion,”White-Collar Outsourcing,” hosted by the Institute for International Economics (IIE), Catherine Mann (Senior Fellow, IIE) argued that an even wider diffusion of IT throughout the U.S. economy, coupled with an upgrade of domestic IT skills, will spur a second wave of productivity growth. This, she said, can be achieved through a combination of the globalization of software and IT services, which will make the overall IT package affordable for more businesses, and domestic adjustment policies aimed at helping U.S. workers climb up the IT skills ladder, “as rungs on the bottom are moved elsewhere or eliminated entirely.”