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Productivity, wages and profits: Does firms’ position in the value chain matter? National Bank of Belgium, Working Paper No. 358

Mahy, Benoît and Rycx, François and Vermeylen, Guillaume and Volral, Mélanie (2018) Productivity, wages and profits: Does firms’ position in the value chain matter? National Bank of Belgium, Working Paper No. 358. [Working Paper]

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    This paper is the first to estimate the impact of a direct measure of firm-level upstreamness on productivity, wage costs and profits (i.e. productivity-wage gaps). To do so, we merged detailed Belgian linked panel data, covering all years from 2002 to 2010, to a unique data set developed by Dhyne et al. (2015), which contains accurate information on the position of (almost) each commercial firm in the value chain at each year. We rely on the methodological framework that has been pioneered by Hellerstein et al. (1999) to estimate dynamic panel data models at the firm level. Our estimates show that if upstreamness increases by one step (that is, by approximately, one standard deviation), productivity rises on average by 5%. They also indicate that productivity gains associated to upstreamness are shared almost equally between wages and profits. However, upstreamness is found to be more beneficial for workers’ wages in less competitive environments, where the price-elasticity of demand for firms’ products is typically smaller. Overall, these findings are compatible with the assertion that firms should move up the value chain to be more productive and profitable, but also that being higher in the value chain is likely to facilitate firms’ control over strategic downstream activities. Our results can also be understood through the application of the Melitz (2003) model to the value chain framework.

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    Item Type: Working Paper
    Uncontrolled Keywords: global value chains, upstreamness, productivity, rent-sharing, Linked employer-employee panel data, Product market competition
    Subjects for non-EU documents: Countries > Belgium
    EU policies and themes > Policies & related activities > economic and financial affairs > business/private economic activity
    Subjects for EU documents: UNSPECIFIED
    EU Series and Periodicals: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 29 Nov 2019 14:50
    Number of Pages: 39
    Last Modified: 29 Nov 2019 14:50

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