Global Value Chain Participation, Competition, and Markups: Evidence from Ethiopian Manufacturing Firms

Choi, Jieun; Fukase, Emiko; Zeufack, Albert G.

doi:2021.36.3.491

The Journal of Economic Integration 2021 September;36(3) :491-517.
DOI: https://doi.org/10.11130/jei.2021.36.3.491

Global Value Chain Participation, Competition, and Markups: Evidence from Ethiopian Manufacturing Firms

Jieun Choi, ¹ Emiko Fukase, ¹ Albert G. Zeufack ¹ and

¹World Bank, USA

Corresponding Author: Emiko Fukase ,Tel: +1-917-873-4053, Email: efukase@worldbank.org/emikof2@aol.com

ABSTRACT

This study uses detailed manufacturing census panel data for 2000 to 2014 to explore the relationship between Ethiopian firms’ global value chain (GVC) participation and markups. We find that GVC firms, defined as firms involved in both exporting and importing intermediate inputs, tend to have lower markups relative to non-trading firms and firms that are involved only in material imports. Moreover, the more intensely a firm is integrated into a GVC (measured by the share of export value added and imported inputs in total sales), the lower its markup is. Finally, we explore competition effects at the industry level and find that firms operating in industries with a relatively high GVC presence and suppliers selling inputs to such industries tend to have lower markups owing to horizontal competition and backward linkages, respectively. All of these findings suggest that GVC participation is associated with greater competition for Ethiopian firms.

JEL Classification

D22: Firm Behavior: Empirical Analysis
F14: Empirical Studies of Trade
F61: Microeconomic Impacts
L11: Production, Pricing, and Market Structure; Size Distribution of Firms
O14: Industrialization; Manufacturing and Service Industries; Choice of Technology

Keywords: competition | Ethiopia | global value chain | markup