NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by Zhihong Yu

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Working Papers

November 2012Firms and Credit Constraints along the Global Value Chain: Processing Trade in China
with Kalina Manova: w18561
Global value chains (GVCs) allow firms to produce and export final goods, or to perform only intermediate stages of production by processing imported inputs for re-exporting. We examine how financial constraints determine companies’ position in GVCs and how this position affects profitability. We exploit matched customs and balance-sheet data from China, where exports are classified as ordinary trade, import-and- assembly processing trade (processing firm sources and pays for imported inputs), and pure-assembly processing trade (processing firm receives foreign inputs for free). Conducting more steps of the supply chain increases not only value added, but also profits. However, it requires more working capital because it entails higher up-front costs. As a result, credit constraints restri...

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