Global value chains and credit risk in times of exogenous shocks

This paper investigates the relationship between firms’ participation in global value chains (GVC) and credit risk, measured through delayed payments, overdue obligations, and insolvency risk. We hypothesize that GVC participation is associated with improved firm performance in terms of lower credit risk. To empirically test this hypothesis, we use survey data from the World Bank, combining information on firms’ financial performance during the COVID-19 pandemic with data on their pre-pandemic GVC involvement. The dataset covers more than 8900 firms across 28 countries over the period 2019–2021. We estimate probit and complementary log-log models to assess the association between GVC participation and the probability of experiencing payment delays, overdue obligations, and insolvency risk, while controlling for relevant firm-level characteristics. Our findings indicate that firms with a higher degree of international integration are less likely to face credit repayment difficulties and insolvency risk. We also conduct several robustness checks that support the baseline estimates, although the results should be interpreted as conditional correlations rather than causal effects.