Decoding specialisation patterns in global value chains: the role of multinationals and domestic firms

Abstract

This paper examines the role of multinationals (MNEs) and domestic firms and their exporting channels—direct/indirect— in explaining functional specialisation (FS) patterns. In particular, we consider R&D and fabrication value chain functions. To identify the FS pattern, we apply the FDI-based approach proposed by Stöllinger (2021). The export intensity of domestically and foreign-owned firms is assessed by decomposing the OECD AMNE database. We employ a Generalised Structural Equation Model in the form of the 3-equation recursive system to evaluate the relation between FS and the exporting channels of MNEs and domestic firms. In this paper, we draw on data for the EU countries, with a particular focus on the Central and Eastern European (CEE) economies from 2003 to 2018. The results indicate different roles of MNEs and domestic firms in supporting GVC activities. The direct export intensity of domestic firms is positively related to FS in production, while the direct export intensity of MNEs supports specialisation in R&D. More detailed analyses for the EU15 and CEE countries indicate two different types of firms and their different export channels supporting specialisation in R&D activities. For EU15 countries, it is the direct export of MNEs, whereas CEE countries strengthen the R&D function through the indirect export of their domestic firms. Our findings suggest that EU countries should consider more flexible, task-specific FDI incentives, particularly for R&D, rather than targeting specific sectors. For CEE countries, promoting the indirect export of domestic firms by facilitating matchmaking with local exporters could enhance specialisation in R&D.