Does participation in global value chains extend export duration?

• Author: Qian Wei,Bin Liu,Xuechang Zhu
• DOI: http://doi.org/10.1111/rode.12588
• Published date: 01 August 2019
• Date: 01 August 2019

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wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2019;23:1282–1308.

© 2019 John Wiley & Sons Ltd

DOI: 10.1111/rode.12588

REGULAR ARTICLE

Does participation in global value chains extend

export duration?

XuechangZhu1

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BinLiu2

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QianWei2

1University of Tianjin, Tianjin, China

2University of International Business and

Economics, Beijing, China

Correspondence

Bin Liu, China Institute for WTO Studies,

University of International Business and

Economics, Huixin West Street, Chaoyang

District, Beijing 100029, China.

Email: liubin_uibe@yahoo.com

Funding information

“the Fundamental Research Funds for the

Central Universities” in UIBE of China,

Grant/Award Number: CXTD10-11;

Beijing Social Science Fund “‘going out’

development strategy research for Beijing

enterprises from the perspective of global

value chain”, Grant/Award Number:

16YJC059; Graduate Course Construction

Project, Grant/Award Number: X17113;

China Postdoctoral Science Foundation,

Grant/Award Number: 2018M630246;

National Social Science Foundation of

China, Grant/Award Number: 17ZDA098;

“the Postgraduate Innovative Research

Fund” of University of International

Business and Economics, Grant/Award

Number: 201809

Abstract

This paper investigates the relationship between participation

in global value chains (GVCs) and export duration based on a

model of discrete- time proportional hazards. The economet-

ric analysis relies on the merged data of Chinese Annual

Survey of Industrial Firms (CASIF) database and Chinese

Customs Trade Statistics (CCTS) database over the period

from 2000 to 2013. Empirical results suggest that participa-

tion in GVCs could positively extend export duration and is

robust to various specifications, including the samples with

multiple spells, measurement error, and the alternative meas-

ure of participation in GVCs. Further studies based on hetero-

geneous variables demonstrate that the improvement of

product quality, asset- specific investment, and product diver-

sity for enterprises participating in GVCs could positively

extend export duration. This paper contributes to our under-

standing of how participation in GVCs affects export duration

based on firm heterogeneity. Our results may have important

implications for enterprises wishing to avoid export risks.

KEYWORDS

export duration, global participation in value chains, heterogeneity

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INTRODUCTION

A considerable amount of literature has grown up around the theme of export duration. In particular,

with the deepening of the international division, export duration has become a central issue for export

growth (Shao, Xu, & Qiu, 2012). On the one hand, extending export duration is the main driving

force for increasing intensive margins of export, which is closely related to export growth (Besedeš &

Prusa, 2011; Fugazza & Molina, 2011). On the other hand, it is argued that extending export duration

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helps to reduce trade volatility and support stable economic growth (Giovanni & Levchenko, 2009).

However, evidence suggests that the median duration of export to the U.S. market is only 2 to 4 years

(Besedeš & Prusa, 2006). For China, it is argued that the mean value of export duration is less than 2

years (Chen, Li, & Zhou, 2012; Shao et al., 2012). Similar results hold for Germany (Nitsch, 2009),

Peru (Volpe- Martincus & Carballo, 2008), and other developing countries (Brenton, Saborowski, &

Von Uexkull, 2010). In a situation like this, how to maintain export relationships and extend export

duration has become a matter of great concern to economic growth.

Meanwhile, because of the decline in trading cost and the development of information technology,

intra- product specialization has been the main body of the international division under the global

production network (Tsai & Zhou, 2015). As argued by Grossman and Helpman (2005), intra- product

specialization refers to the transnational production system that the production processes and stages of

a certain product are decomposed and spread to different countries along the value chains, speeding

up the growth of trade in intermediates and driving the formation of global value chains (GVCs). In

a sense, trade relations between countries in GVCs may be closer than other trade modes. Therefore,

participating in GVCs may be an effective way to extend export duration under global production

network.

According to OECD and World Bank definitions, participaration in GVCs refers to trading activ-

ities where enterprises try to optimize their production processes by locating various stages across

different countries, with each step in the process adding value to the final product. If so, by partici-

pating in GVCs, enterprises can establish closer trade relationships with upstream and downstream

companies. Concretely, in order to participate in GVCs, enterprises have to pay for some irreversible

sunk costs that are highly exclusive, such as asset- specific investments. Once the suitability of trading

partners is verified, enterprises participating in GVCs are reluctant to replace their existing trading

partners with new ones. For instance, Foxconn has participated in Apple's GVCs by establishing some

Apple mobile phone product lines, which also makes Foxconn a long- term stable foundry of Apple.

That is, an enterprise participating in GVCs may enjoy a long- term stable relationship with trade part-

ners, providing preliminary evidence that participation in GVCs is closely related to export duration.

This paper contributes to the burgeoning literature that formally tests the relationship between

participation in GVCs and export duration. Concretely, previous literature mainly focused on the

spillover effects of participation in GVCs (Altomonte, Di Mauro, Ottaviano, Rungi, & Vicard, 2012;

Gereffi, 2014; Harding & Javorcik, 2012; Koopman, Powers, Wang, & Wei, 2010). Up to now, the

impact of participation in GVCs on export performance has been understudied, particularly the

impact on export duration. Most previous studies on export duration have focused on its determi-

nants, including export experience, sunk cost, and market diversification (Alvarez, 2007; Carrere

& Strauss- Kahn, 2012; Fugazza & Molina, 2011; Shao et al., 2012). To our knowledge, this paper

presents the first firm- level evidence on the role of participation in GVCs in extending export du-

ration in China. The contribution of this paper also extends the literature on the impact of partic-

ipation in GVCs by focusing on firm heterogeneity. Specifically, three heterogeneous variables

are incorporated into our models, including product quality, asset- specific investment, and product

diversity. To further understand the impact of participation in GVCs on export duration, we exam-

ine whether these heterogeneous variables affect this relationship. Results suggest that enterprises

participating in GVCs can enjoy longer export duration with the improvement of product quality,

asset- specific investment, and product diversity.The remainder of the paper is organized as follows.

Section 2 reviews relevant literature and discusses theoretical mechanisms. Section 3 provides the

survival analysis and some summary statistics. Section 4 describes the main empirical findings.

Section 5 investigates the effects of participation in GVCs on export duration based on heterogene-

ity. The final section concludes.