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Cambridge Journal of Economics Advance Access published online on June 3, 2008
Cambridge Journal of Economics, doi:10.1093/cje/ben016
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© The Author 2008. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Power relationships along the value chain: multinational firms, global buyers and performance of local suppliers

Carlo Pietrobelli and Federica Saliola*

* CREI, University of Roma Tre and CREI, University of Roma Tre and The World Bank, respectively

Address for correspondence: Carlo Pietrobelli, CREI, University of Roma Tre, Via Ostiense 161, 00154 Rome, Italy; email: c.pietrobelli{at}uniroma3.it

There is a growing literature exploring the role of international trade channels on economic growth, looking at the mechanisms through which import and export flows might affect productivity, technology diffusion and output growth. However, most of this literature appears to neglect an important part of the story, which is the form and the organisation of the relationships (the governance) among the various actors involved in these activities and their implications for development. The recent literature on global value chains and their governance takes this element explicitly into account, and we explore it empirically with a new dataset on Thailand. To this aim, we study global and domestic value chains in Thailand, and develop a quantitative measure of their governance, which takes into account different levels and types of buyer involvement with supplier activities. We then use this measure to explore econometrically its relationship with performance of suppliers. An important finding is that in value chains led by a multinational corporation, the relationships that the leaders have with their suppliers is multifold and generally more intense than for domestic value chains. Our estimates suggest that more intense buyer involvement with local suppliers, not only in the definition of product characteristics, design and quality, but also in technology dissemination and R&D, is generally associated with higher supplier productivity. This is consistent with other sources of evidence. However, the governance of the value chain appears to affect the productivity of suppliers in domestic value chains to a greater extent than for firms supplying multinational corporations or for exporters. We suggest that this result may be explained by the different nature of the information and knowledge being exchanged, and by the larger gaps in knowledge and capabilities between the domestic leader and its suppliers.

Key Words: Global value chains • Multinational corporations • Governance • Foreign direct investment • Upgrading • Productivity

JEL classifications: F23, O14, O33

Manuscript received July 31, 2007; final version received December 13, 2007.


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