Do Cross-Border Mergers and Acquisitions Reflect Participations Into Global Value Chains

Received: 6 January 2020
| Revised: 19 April 2021

| Accepted: 26 April 2021
DOI: 10.1111/twec.13135
ORIGINAL ARTICLE
Do cross-border mergers and acquisitions reflect

participations into global value chains?
Maria Cipollina1 | Filomena Pietrovito1 |

Alberto Franco Pozzolo2
1
Università degli Studi del Molise,
Campobasso, Italy
Abstract
2
Università degli Studi di Roma Tre and Global value chains (GVCs) are a major feature of globali-
Centro Studi Luca d’Agliano, Rome, Italy sation, with a strong impact on the patterns of international
trade. In this paper, we study the link between GVCs and
Correspondence
Alberto Franco Pozzolo, Università degli cross-border mergers and acquisitions (M&As), testing the
Studi di Roma Tre and Centro Studi Luca two symmetric hypotheses that a higher degree of partic-
d’Agliano, Rome, Italy.
ipation in GVCs increases the probability that a firm ac-
Email: alberto.pozzolo@uniroma3.it
quires: (i) the producers of their imported inputs or (ii) the
users of their exported products. Our analysis is based on a
unique data set covering 12 supplier and user sectors, for
over 22 investor countries and 47 target countries between
1995 and 2010. Estimating an augmented gravity equation
model of cross-border M&As, inflated with a large number
of bilateral sector and country-fixed effects, we find strong
evidence of a positive and statistically significant impact of
GVC participation on the total value of cross-border M&As,
although the economic impact is substantial only in the case
of few sectors.
KEYWORDS
global value chains, mergers and acquisitions, sector level
1 | IN T RO D U C T ION
Between 2000 and 2007, the value of the total stock of outward FDIs more than quadrupled, from 7.4
trillion of US dollars to 30.8 trillion (UNCTAD, 2013). A large part of this increase is explained by
two related facts: the growing role of cross-border production networks, and the increasing incidence
of multinational enterprises (MNEs) within such networks. The world share of exports that were part
of a multi-stage trade process increased from 32% of world exports in 2005 to 57% in 2010. Remarkably,
World Econ. 2021;00:1–34. wileyonlinelibrary.com/journal/twec © 2021 John Wiley & Sons Ltd | 1
2
| CIPOLLINA et al.
most of the cross-border trade in intermediate components takes place within very complex produc-
tion networks, better known as global value chains (GVCs).1
Given the increasing importance of GVCs, there is an obvious link between FDIs and international
trade. On the one hand, according to UNCTAD (2013), about 80% of total world trade takes part
within GVCs, which in turn involve significantly the activities of MNEs.2 But the opposite channel is
also likely to be important, because firms whose international trade takes part mainly within a GVC
may be willing to strengthen their control on foreign suppliers or foreign users, by acquiring a partic-
ipation in those firms.
The focus of this paper is precisely in this second channel, exploring how cross-border mergers and
acquisitions (M&As) reflect participations in global value chains. We distinguish two symmetric hy-
potheses: (i) that users of imported inputs acquire their foreign suppliers and (ii) that exporters acquire
the foreign purchasers of their products.
Our paper aims to contribute to the recent literature that has expanded the seminal contribution of
Antràs (2003), which shows that the optimal organisational structure follows from the ability to dele-
gate decision rights without losing control, applying it to the specific case of the allocation of control
along the value chain (Antràs & Chor, 2013).3 Alfaro et al., (2019) show that, depending on the char-
acteristics of the goods produced, on the stage of production at which a firm intervenes, and on a
number of institutional and organisational characteristics, the optimal organisation includes indepen-
dent exporters, some plants or activities that are loosely integrated within the boundaries of the global
firm, and other plants or activities that are instead under the strong control of the top management of
the parent company. To verify the empirical predictions of their theoretical model, Alfaro et al., (2019)
link each firm to its headquarters and subsidiaries and use input–output tables to identify the share of
its inputs which is produced within the group's boundaries (and the complement set of those inputs,
whose production is outsourced from external suppliers). Consistent with their predictions, they show
that the propensity to integrate upstream production stages is lower for firms facing a smaller price
elasticity of the demand for their products and at more upstream levels of production.
Our paper aims at contributing to this literature through a different approach, by providing evi-
dence of a relationship between the degree of participation in GVCs and value of cross-border M&As,
using a gravity equation. Therefore, this work is also related to the growing literature aimed at estimat-
ing a gravity equation for FDI (Eaton & Kortum, 2002; de Sousa & Lochard, 2011), and in particular
to Head and Ries (2008), who develop a theoretical model of FDI where heterogeneous investors bid
to obtain control rights on existing overseas assets and derive a micro-foundation for a gravity equa-
tion for FDI.
1
Among many others, UNCTAD (2013) defines GVC as borderless production systems, characterized by the fragmentation
of production processes and the international dispersion of tasks and activities. The example of the iPhone is probably the
best known among many other possible (Xing, 2011): iPhones are designed and marketed by Apple in the US, but most
iPhone components are produced by firms in many different countries, assembled into final products in China, and then
exported to the US and to the rest of the world. Indeed, although the final product is shipped from a Chinese company, this
assembly process accounts for a low share of the iPhone's manufacturing value added.
2
Even for a large developed country like the United States, intra-firm trade is about 30% of total exports and more than 35%
of total imports (Ruhl, 2015).
3
A recent paper by Choi (2020) extends the model of Antràs and Chor (2013) to study the impact of financial frictions on the
allocation of property rights, showing that multinational firms are more likely to acquire input suppliers when these are
located in countries with weak financial institutions.
CIPOLLINA et al.
| 3
Our research question is not new, but as argued by Carril-Caccia and Pavlova (2020), ‘the empiri-
cal literature that directly addresses the relationship between FDI and GVCs is scarce’. While recent
studies have focussed on firm-level information to study the relationship between GVCs and FDIs
(see, for instance Alfaro et al., 2019), our approach complements these analyses.4 Whether to use
macro-or micro-level indicators of GVCs is itself the object of an intense debate. As argued by
Johnson (2018), at the macro-level the ‘global input–output tables’ use disaggregated trade data to link
national input–output tables between countries; at the firm-level GVCs are useful to document firm's
input sources, importing and exporting connections, as well as decisions on organisation of production
networks (such as, offshoring). The industry-level analysis assumes that ‘there is a representative
producer in each industry, operating with a technology that reflects industry averages, and whose out-
put is distributed across sectors and end uses based on average use patterns’ (Johnson, 2018, p. 228).
Building on the idea that aggregating firm-level imports at industry-level provides a good estimate of
bilateral input trade, Feenstra and Jensen (2012) construct an industry-to-industry import input–output
table, using US firm-level data, finding a high correlation with existing input–output tables. The pic-
ture emerging using industry-level data is therefore not dissimilar from that obtained from firm-level
analyses.5
We thus complement the aggregate evidence of Martínez-Galán and Fontoura (2019) and Carril-
Caccia and Pavlova (2020), who show, respectively, the impact of participation in GVCs on inward
FDIs and that of trade openness on M&As, using information at a higher level of disaggregation.
Consistent with the details available for GVCs, our analysis is based on a unique dataset covering 12
supplier and user sectors, for over 22 investor countries and 47 target countries between 1995 and
2010. Leveraging on this large number of dimensions, we can also adopt a more robust empirical
approach, inflating the econometric specification with a large number of dummies. This allows to
control for all measurable and potentially omitted factors at the country, sector and bilateral level,
whose omission would have seriously biased the results. For example, we do not add explanatory
variables typically included in a gravity equation, such as geographical distance and other controls
for characteristics of bilateral country relationships, because they are already captured by country-
pair dummies, and we have no need to control for the value of total imports of a given country from
a given sector of foreign country, because this is also already captured by a dummy with the same
dimension (which is identified by the fact that there are many exporting sectors in each country). Our
results are therefore valid controlling for the role of the factors suggested by nearly all alternative or
complementary hypotheses (see, for instance, Jiménez et al., 2014). While our econometric approach
4
Alfaro et al., (2019) focus their analysis on the boundaries of integrated firms, without comparing these firms with those
which are not integrated. Our paper studies instead the corporate governance decisions on whether and in which country and
industry firms should integrate with another firm through an M&A. In our analysis, all firms in each country and industry can
potentially merge with a firm in any other country and industry included in the sample, and we test precisely whether M&As
are more likely to take place between countries and industries involving a larger incidence of suppliers of a firm's inputs or of
users of a firm's output, as measured by participation in GVCs. Clearly, such an analysis is impossible to conduct at the firm
level, because of the curse-of-dimensionality problem caused by the inclusion of all potential targets—that is, in principles,
all firms in the world—but is instead feasible at the country/industry level, as we do in our paper.
5
A related debate is also growing on the possibility to extend the results of empirical analyses to different settings (in
particular with reference to randomized control trials). In an interesting methodological paper, Roe and Just (2009) define
external validity as “the ability to generalize the relationships found in a study to other persons, times, and settings”.
Rosenzweig and Udry (2020), for example, recall that the generalization of treatment effects across populations can be
difficult, as shown by Allcott (2015), Dehejia et al., (2021) and Meager (2016). A related field of research focuses explicitly
on the issue of scalability, that is whether research results scale to larger markets and settings (Al-Ubaydli et al., 2017). Thus,
our analysis also complements firm-level studies by providing external validity to their findings.
4
| CIPOLLINA et al.
may still suffer from potential reverse causality problems, and a word of caution needs to be said on
a strong causal interpretation of our results, our empirical specification reduces substantially the risk
that our estimates are driven by common omitted factors driving both M&As and GVC participation.
Two crucial issues concerning our measures of FDIs and GVCs must also be mentioned. First,
firms can integrate cross-border activities within a GVC not only through a merger or an acquisition
but also by a greenfield FDI. Our focus on M&As only—similar, for example, to Head and Ries
(2008)—is motivated by the fact that very detailed data on these operations are collected by commer-
cial providers, such as Thomson Financial with its SDC database, while no comprehensive data on
FDIs disaggregated at the time, sector and country level are yet available. While this may appear as a
weakness of our analysis, a large evidence documents that a substantial part of the stock of FDIs is the
result of M&As. Moreover, since M&As typically have a lumpy behaviour, in the baseline specifica-
tion we consider their aggregate value across over a decade, exploiting the time dimension of our
dataset only to pre-date the measure of participation into GVCs and for the robustness checks. Second,
our indices of GVC participation, the OECD TiVA (Trade in Value Added)6 indicators, are the share
of the value added imported by each sector of the user country from each sector of the supplier coun-
try, over the total value of exports of the user country (backward GVC participation index) or over the
total value of exports of the supplier country (forward GVC participation index). As such, they do not
consider domestic consumption of the final goods exported. For example, they do account for the
value added of Chinese exports in the US exports of iPhones to other foreign countries, but it does not
take into account the value added of Chinese exports in the domestic sales of iPhones in the United
States. While this could potentially affect our results, to the best of our knowledge data on GVC par-
ticipation that includes also the foreign value added contribution to domestic sales are not yet avail-
able. Therefore, either we consider our measure as an imperfect proxy of the participation GVC that
also includes domestic sales or we interpret our results as identifying that part of cross-border M&As
that is explained by export-driven GVC participation.
Our findings point to a robust statistical link between GVC participation and both upstream and
downstream cross-border M&As. However, the economic impact is rather small.
The rest of the paper is structured as follows. Section 2 briefly summarises the literature on the
determinants of FDIs that is relevant for our analysis. Section 3 introduces the empirical methodol-
ogy and the econometric model. Section 4 describes the sources of our data and how they have been
merged to obtain a unique data set and presents some descriptive statistics. Section 5 presents and
discusses the baseline results of the empirical analysis, and Section 6 presents the results of some
robustness checks obtained by splitting the original sample across several dimensions. Section 7 pres-
ents the results obtained estimating a panel regression. Section 8 concludes.
2 | AVA ILA B L E E V ID E NC E ON THE DETERM INANTS

O F F D Is
The literature on the determinants of FDIs can be divided into two main streams: the business-oriented,
eclectic paradigm first proposed by Dunning (1973,1981), and the economic-oriented approach, that
can be referred originally to the seminal paper of Markusen (1984). According to the first strand of
research, FDIs are explained by three major sets of determinants: (a) ownership advantages, suggest-
ing that firms invest abroad if they have better know-how or organisational capacity compared with
competitors in foreign countries; (b) location advantages, related to proximity to specific input or
6
https://www.oecd.org/sti/ind/measuring-trade-in-value-added.htm
CIPOLLINA et al.
| 5
output markets; and (c) internalisation advantages, suggesting that FDIs take place when owning a
foreign subsidiary is more profitable than exporting or licensing foreign producers. According to the
second strand of research, FDIs are explained by the trade-off between plant-level economies of scale,
that favour concentration of production and trade, and costs of transport and access to foreign markets,
that favour instead producing abroad (Markusen, 1984).
An additional dimension in the research on FDIs that is especially relevant for our analysis is the
distinction between horizontal and vertical FDIs. In horizontal FDIs, a firm acquires or settles a for-
eign subsidiary with the purpose of producing abroad the goods that it would have otherwise exported,
so to save on the trade costs associated with exporting. In vertical FDIs, a firm acquires or settles a for-
eign subsidiary that either produces some of its relevant inputs, or instead uses its products as inputs in
its manufacturing process. Vertical FDIs are typical in the case of GVCs, when the production process
is fragmented and each stage can be located in a different country, to exploit lower factor prices or to
access specific resources not available elsewhere.
Recently, fostered by the large anecdotal evidence available, a new and growing strand of academic
literature has begun to study how and to what extent FDIs and GVCs are interdependent phenomena.
From a theoretical perspective, the optimal organisational structure of cross-border activities within
a GVC depends on different factors. Building on the seminal paper by Coase (1937), a more recent
strand of literature studies the determinants of vertical FDI as an aspect of the analysis of firm bound-
aries and organisation (Grossman & Hart, 1986). Using this conceptual framework, Antràs (2003) has
adapted an incomplete-contracting, property rights model to a standard trade model with imperfect
competition and product differentiation, being able to account for a large number of features of the
patterns of intra-firm international trade. On similar grounds, Antràs and Helpman (2004) developed a
model with incomplete contracts in which both final-good producers and suppliers located in different
countries undertake relationship-specific investments that enhance the value of their firms.
Antràs and Chor (2013) extended this analysis building a model of a firm with a continuum of
stages of production, which yields a characterisation of the optimal allocation of ownership rights
along the value chain. More recently, Alfaro et al., (2019) have further expanded the model of Antràs
and Chor (2013) to study the extent of control that firms should optimally exert over the different
segments of their production processes, showing that contractual frictions play an important role in
shaping the integration choices of firms around the world. On a similar ground, Choi (2020) shows
that input suppliers located in countries with weak financial institutions are more likely to be acquired
by MNEs.
The empirical literature on FDIs has focussed mainly on aggregate data, at the country of sector-
level, often within the framework of gravity models. Gravity models of cross-border capital move-
ments still lack a robust theoretical micro-foundation as that provided to international trade models by
the seminal contribution of Anderson and van Wincoop (2003), but nonetheless their application dates
back at least to Eaton and Tamura (1994), who show that the standard determinants of international
trade in gravity models—size (population), income per capita, and distance—also explain the pattern
of FDIs. More recent analyses have expanded the original set of explanatory variables, showing that
FDIs are also explained by cultural differences (Di Giovanni, 2005; Head & Ries, 2008), regulatory
and institutional characteristics, such as accounting standards, the degree of shareholder protection,
taxation (Daude & Fratzscher, 2008; Erel et al., 2012; Rossi & Volpin, 2004), the development of fi-
nancial markets (Di Giovanni, 2005) and bilateral trade (Erel et al., 2012).7
7
Noticeably, in our empirical framework, all these dimensions are captured by fixed effects, allowing to better control for
their impact, thus permitting a more focussed and robust analysis of our two hypotheses.
6
| CIPOLLINA et al.
Our analysis contributes to the gravity-based empirical literature on FDIs, showing that partici-
pation in GVCs is an important additional determinant of cross-border acquisitions. Recently, two
papers closely related to ours have shown that FDIs are positively associated with the participation
of both origin and destination countries to GVCs. Using bilateral country-level data, Martínez-Galán
and Fontoura (2019) show that a stronger participation in GVCs is associated with a larger stock of
inward FDIs, and Carril-Caccia and Pavlova (2020) report that trade openness has a negative impact
on M&As between developed countries, but upstream exports have instead a positive relationship with
M&As. Our research improves on these analyses because it exploits also the sector-level dimension
of the pattern of participation in the GVCs and in that of M&As. This additional dimension allows us
so to inflate the econometric specification with a large number of dummies, a methodology that could
not have been followed using only country-level data. In addition, similar to Carril-Caccia and Pavlova
(2020), we disentangle the relationships of sectors involved in a GVC by testing the two different
hypotheses discussed above, focussing respectively on upstream and downstream linkages. Moreover,
we disentangle these hypotheses taking into account country and sector characteristics.
A large strand of literature has also studied how institutional characteristics—both in the domestic
country (push factors) and in the host country (pull factors)—impact on foreign investment. Bénassy-
Quéré et al. (2007) explain several reasons why the quality of institutions may matter for attracting FDIs,
and show that overgrown bureaucracy, corruption, underdeveloped credit markets and inefficient legal
institutions discourage significantly inward FDIs. Di Giovanni (2005) finds that deep financial markets in
the acquisition countries can play a significant role in cross-border M&A. Rossi and Volpin (2004) pro-
vide evidence that M&As are more common in countries with better accounting standards and stronger
shareholder protection. Hyun and Kim (2010) show that the value of M&As can increase depending on
the institutional quality of the host country (and on financial deepening of the source country).
Following this strand of literature, we also study the role of institutional characteristics. While it is
difficult to disentangle the drivers of the increase in the expansion of cross-border M&As from those
with a specific impact on the diffusion of GVCs, as discussed by Hillberry (2011) and Amador and
Cabral (2017), within the framework of our analysis it is nonetheless possible to verify whether the
impact of GVCs on M&As can be moderated by the differences in the institutional environment of the
target country. Our hypothesis is therefore that GVC participation affects differently the international
transactions of those industries that invest in countries with more efficient institutions.
3 | E M P IR ICA L F R A ME WOR K
Our empirical analysis aims at testing two symmetric hypotheses:
1. The supplier target hypothesis, advocating that the value of cross-border M&As with a target
in a given country/industry is higher from countries/industries which use their products as
inputs, thus importing them (i.e. upstream M&As, in which acquirers target their suppliers);
2. The user target hypothesis, advocating that the value of cross-border M&As with a target in a
given country/industry is higher from countries/industries to which they export their products (i.e.
downstream M&As, in which acquirers target the buyers of their products).8
8
In the iPhone GVC example, we are interested not only in the fact that China assembles components and parts and then
re-exports to the United Stated (that eventually re-exports to the rest of the world), which might lead to downstream M&As,
but also in the fact that China imports a significant share of the value of its exports from other foreign suppliers, possibly
leading to upstream M&As.
CIPOLLINA et al.
| 7
To test these hypotheses, we use as dependent variable the total value of M&As of a given sector
of the investing country in a given sector of the target country, and as the main explanatory variables
the two GVC participation indices produced by the OECD as part of the TiVA statistics. For the sup-
plier target hypothesis, we use the backward index of participation in GVCs, defined as the share of
the value added imported by each sector of the user country from each sector of the supplier country,
over the total exports of the user country. For the user target hypothesis, we use the forward index of
participation in GVCs, defined as the share of the value added exported by each sector of the supplier
country to each sector of the user country, over the total exports of the supplier country.9
As we argued in the introduction, our data allow to inflate the econometric specification with a
very large number of dummies. In this way, we can fully control for all measurable and potentially
omitted factors at the country, sector and bilateral level, whose omission would have seriously biased
the results. In practice, even in our baseline specification, which does not have a panel structure, we
need not control for country or industry characteristics, neither for the interaction of country and
industry characteristics, nor for characteristics of country pairs (e.g. geographical distance and com-
mon borders): they are all fully and perfectly controlled for by our set of dummies. In fact, we cannot
even control for such characteristics, because they would be perfectly collinear with our dummies.
Clearly, this is a major strength of our specification, because it wipes away many concerns that our
results could be ascribed to endogeneity problems caused by omitted variables driving both GVCs
and M&As.
To assess whether a higher GVC participation of a user sector positively affects upstream cross-
border M&As to the supplier sector (the supplier target hypothesis), we adopt the point of view of a
bidder firm in sector i of country h (identified as ih) considering to acquire a target firm in sector j of
country z (identified as jz). Recall that the supplier target hypothesis amounts to saying that firms in
ih wish to acquire the suppliers of their products. This hypothesis can then be tested verifying if cross-
border M&As from ih to jz are a positive function of the backward index of participation in GVCs
of the bidder sector ih in jz, since a higher value implies that exports of ih contain a large amount of
value added imported from jz (normalised over total exports of country h). Our baseline specification
is therefore as follows:
M&Aih,jz = 𝛽 1 backwardGVCjz,ih + 𝛿 ijh + 𝛿 ijz + 𝛿 ihz + 𝛿 jhz + 𝜀ihjz , (1)
where M&Aih,jz is the average value of mergers and acquisitions from sector i in country h to sector j in
country z over the period 2000–2010,10 and backwardGVCjz,ih is the backward GVC participation index
of sector i of country h in sector j of country z. More precisely, the backward GVC participation index,
produced by OECD as part of the TiVA statistics, is defined as the average value over the period 1995–
1999 of the ratio of total value added imported from the supplier sector j in country z embodied in the total
exports of the user sector i in country h, EXGR_BSCIjz,ih, and the total gross exports of country h, EXGRh:
EXGR_BSCIjz,ih
backwardGVCjz,ih = × 100. (2)
EXGRh
9
Although many indicators of participation in GVCs have been proposed in the literature, we use TiVA indicators because of
their widespread diffusion in both policy and academic analyses (see, e.g. Bohn et al., 2018); for a presentation and
discussion of the methodology adopted in their construction, see Ahmad et al. (2017).
10
When we estimate the model using a least square dummy variable (LSDV) specification, the dependent variable is
ln 1 + M & Aih,jz ; see the discussion below for the choice of the estimation technique between LSDV and Pseudo Poisson
( )
Maximum Likelihood (PPML).

8
| CIPOLLINA et al.
In other terms, the GVC participation index is defined as the value added embodied in sector-level
exports of country h, as a share of total gross exports of a country h. For instance, it measures the
share of value added produced by the electronic component sector in Japan and embodied in exports
of the electronic component sector of China, over China's gross exports. By construction, this index
includes at the numerator all the sector pairs selected in our dataset, and at the denominator the total
value of exports of country h, including all sectors. In addition to the key explanatory variable, as al-
ready mentioned above, we inflate our specification including a set of dummies for all possible triple
combinations of suppliers’ and users’ countries and sectors: 𝛿 ijh , 𝛿 ijz , 𝛿 ihz , 𝛿 jhz.
Similarly, to assess whether a higher GVC participation of a supplier sector positively affects
downstream cross-border M&As to the user sector (the user target hypothesis), we adopt the point of
view of a bidder firm in ih considering to acquire a target firm in jz. The user target hypothesis can
then be tested verifying if cross-border M&As from ih to jz are positively affected by the forward
index of participation in GVCs of the bidder sector ih in jz, since a higher value of the forward index
of participation implies that exports of jz contain a large amount of value added imported from ih
(normalised over total exports of country h). In other words, firms in ih target the acquirers of their
products. Our baseline specification for the user target hypothesis is therefore as follows:
M&Aih,jz = 𝛽 1 forwardGVCih,jz + 𝛿 ijh + 𝛿 ijz + 𝛿 ihz + 𝛿 jhz + 𝜀ihjz , (3)
where M&Aih,jz is the average value of mergers and acquisitions from sector h in country i to sector z in
country j over the period 2000–2010, and forwardGVCih,jz is the forward participation index in GVCs of
sector i in country h in sector j in country z. The forward GVC participation index is defined as the average
value over the period 1995–1999 of the ratio of total value added imported by the user sector j in country z
from the supplier sector i in country h that is contained in jz exports, EXGR_BSCIih, jz, and the total gross
exports of country h, EXGRh:
EXGR_BSCIih,jz
forwardGVCih,jz = × 100. (4)
EXGRh
The GVC participation index is therefore the value added embodied in sector-level exports of
country z, as a share of total gross exports of a country h. For instance, it measures the share of value
added produced by the nut farming sector in Turkey embodied in exports of the chocolate manufactur-
ing sector in Italy, on Turkey's gross exports. As in the case of the backward participation index, this
index includes by construction at the numerator all the sector pairs selected in our dataset, and at the
denominator the total value of exports of country h, including all sectors. Also in this case, in addition
to the key explanatory variable, we inflate our specification including a set of dummies for all possible
triple combinations of suppliers’ and users’ countries and sectors: 𝛿 ijh , 𝛿 ijz , 𝛿 ihz , 𝛿 jhz.
Regressing M&As on the indicator of GVC participation one may incur in an omitted variables
bias. Whether or not a sector is involved in GVCs is likely to be correlated with several unobserved
industry-level and country-level attributes. Not controlling for these attributes could lead to biased
estimates of the effect of GVC participation on M&As. For instance, standard determinants of M&As,
in a gravity framework, include sector-level GDP in the source and the host country, geographical
distance and additional bilateral features such as common border, common language, common reli-
gion, common currency or bilateral treaties or agreements. These variables are usually found in the
empirical gravity literature as influencing both trade (Baier & Bergstrand, 2009) and FDIs (Head &
Ries, 2008). However, our empirical framework allows for inflating the specification by including
bilateral country dummies for each sector of the origin country (δihz), bilateral country dummies for
CIPOLLINA et al.
| 9
each sector of the user country (δjhz), bilateral supplier and user sector dummies for the supplier coun-
try (δijh), and bilateral supplier and user sector dummies for the user country (δijz). These fixed effects
absorb all the dimensions of the explanatory variables used in the literature, accounting for the unob-
served characteristics.11
Estimating the equations detailed above requires dealing with several econometric issues. The first
is that the patterns of M&As are characterised by waves (as documented, for example, by Brakman
et al. (2005) and as we will show in Section 4), a feature that introduces a significant degree of noise
in our framework, since GVC participation is instead more stable through time. To control for this
problem, in both specifications we use as dependent variable the average value of M&As in a given
time period and as explanatory variable the average of the GVC participation index during a non-
overlapping preceding period. The second issue is that GVC participation and M&A decisions could
be joint phenomena, because a larger value of inward M&As from sector i of country h to sector j of
country z also causes this latter sector to increase its GVC related exports to sector i in country h.
Thus, it is possible that GVC participation is related to some unobserved characteristics that also in-
fluence M&A decisions. For example, Buelens and Tirpák (2017) show that foreign investors play an
active role in shaping host economies’ export structure and their participation in international produc-
tion networks. This reverse causality link would lead again to biased estimates of the effect of GVC on
M&As. Averaging the value of M&As in a given time period and the index of GVC participation in
the preceding non-overlapping period, as detailed above, is our preferred way to deal with this issue.
In addition, we also present the results of estimates obtained using the dynamic GMM model of
Arellano and Bond (1991), which allows to account for country-pair and sector-pair unobserved het-
erogeneity and also for time-varying unobservables, thereby eliminating an additional possible source
of omitted variable bias.12 Finally, an appropriate assessment of the relationship between the GVC
participation index and M&As at country sector level requires the use of very disaggregated data.
However, as shown by Baldwin and Lopez-Gonzalez (2015), the matrix of GVC linkages is extremely
sparse, with few bilateral flows significant on a global scale; a similar feature characterises the matrix
of sector-level, bilateral cross-border M&As. While these features allow for a better identification of
the links between the patterns of GVCs and those of M&As, they also imply that our database is in-
flated by many ‘zeros’, which create well-known problems in estimating the log-linear model. At the
same time, the exclusion of these observations would lead to a sample selection bias, since the zero
flows could be the result of precise economic choices based on the potential profitability of engaging
in M&A transactions. Santos Silva and Tenreyro (2011) showed that these problems can be tackled
estimating the gravity model using a Pseudo Poisson Maximum Likelihood (PPML) specification,
which gives consistent estimates also in the presence of heteroskedasticity, and is reasonably efficient,
especially in large samples. Accordingly, in our baseline specification, we estimate our model in mul-
tiplicative form using the PPML estimator, as for example Fally (2015) and Yotov et al., (2016). Since
the large proportion of zeros in the dependent variable with multiple country—and sector—dummies
and cluster standard errors leads to computational problems and seriously affects the performance of
the estimator, in the PPML estimates we opt for a reduced structure of fixed effects including country-
pair fixed effects and country sector-specific fixed effects. However, to test the robustness of these
results we also estimate a least-square dummy variables (LSDV) regression with both the reduced and
11
Geographical distance, for example, would be perfectly collinear with bilateral country dummies, which would be
themselves collinear with the bilateral country dummies for each sector of the country of origin and of destination.
12
We thank an anonymous referee for pointing out this issue.
10
| CIPOLLINA et al.
the full structure of fixed effects, finding results broadly consistent with those obtained using the
PPML specification.
4 | DATA S OU RC E S A N D D E S CRIPTIVES
4.1 | Sources of data
To conduct the empirical analysis, we use two main sources of data.13 Data on cross-border M&A
transactions at the firm level are obtained from the SDC Platinum Global Mergers and Acquisitions
database produced by Thomson financial, which records the number of acquisitions and their value
for all deals entailing a change in ownership of at least 5% of total equity, exceeding US$1 million.14
The database allows the analysis of cross-border M&As for a large range of countries, sectors and
years. For the purpose of our analysis, and consistent with the literature on cross-border M&As, we
focus on the value of the operations, and therefore, we do not consider undisclosed and incomplete
deals for which the value of transaction is not available.15 The database also contains information on
target and investor profiles (e.g. primary industry at the 3-digit SIC level and location), that are used
in our empirical analysis to reconcile transaction data with the GVC participation index.
Data on GVC participation, measured via intermediate imported/exported value added embodied
in domestic/foreign exports, are obtained from the OECD-WTO TiVA database, edition 2016.16 The
TiVA indicators are based on the OECD’s Inter-Country Input-Output (ICIO) system, which consists
of a set of symmetric industry by industry global input–output tables. The standard industry list
(STAN) in TiVa is based on International Standard Industrial Classification (ISIC) Revision 4 and is
compatible with the NACE Revision 2 classification used by EU member countries. Since our mea-
sures of M&A are available at the SIC classification, we reconciled the different series according to
the schemes presented in Table A1 in Appendix A.
From the TiVa database, we select a set of sectors and supplier and user countries that have stron-
ger GVC and cross-border M&A connections. We make this choice because the full matrix of bilateral
connections across sectors and countries includes over 4 million observations and is far too sparse to
be analysed. Our original dataset averaged over the two non-overlapping periods considered in the
empirical analysis includes 148,896 observations for 12 supplier and user sectors (agriculture, forestry
and fishing, mining, construction and manufacturing), for a sample of 22 investor countries and 47
target countries, over the period 1995–2010. We provide a synthetic description of the list of supplier
13
Part of the data that support the findings of this study are freely available from OECD and the World Bank, as documented
in the text. Information on M&As was used under license for this study.
14
The main sources of information of data on M&As are financial newspapers and specialized agencies such as Bloomberg
and Reuters. However, until the mid-1980 s, Thomson focussed very much on M&As for the United States only, and for only
the last twenty years or so that (systematic) M&A data gathering took place for other countries (Brakman et al., 2005).
15
Another excluded group is that of domestic M&As, that is, acquisitions with acquirer and target located in the same country
that could still provide access to foreign markets if the target firm is active abroad or if the acquirer is controlled by a foreign
firm. However, in the former case we do not know what foreign markets are (possibly) involved, and in the latter case we
have no information about foreign controls.
16
Though we rely on a more restricted sample, the TiVA database includes 61 economies covering OECD, EU28, G20, most
East and South-East Asian economies and a selection of South American countries. The industry list covers 34 unique
industrial sectors, including 16 manufacturing and 14 services sectors, in the years 1995–2011. OECD-WTO TiVA database
is publicly accessible at https://stats.oecd.org/.
CIPOLLINA et al.
| 11
.0145
.014
.0135
.013
.0125
.012
1995 2000 2005 2010

year
Backward GVC Forward GVC
F I G U R E 1 Backward and forward GVC participation, 1995–2010 (percentages)

Notes: The line Backward GVC represents the patterns of sector-level exported value added, included in user
sector's exports, as a share of user country gross exports and the line Forward GVC represents the patterns of sector-
level exported value added, included in user's sector export, as a share of supplier country gross exports. Source:
Elaborations on OECD-WTO TiVA database, edition 2016. Accessible at: https://stats.oecd.org/.
and user countries used in the empirical analysis in Table A2 in Appendix A.17 However, since we
include four sets of dummies to estimate equations (1) and (3), and in many cases the value of M&As
is zero within the same group and singleton observations are thus produced, our final estimation sam-
ple includes 66,303 observations.18
4.2 | Descriptive statistics
Figure 1 shows the time evolution of the average value of the forward and backward GVC partici-
pation indices. The value added embodied in foreign exports as a share of total gross exports of the
country, the forward index, is on average lower than the backward index, that is the same value added
embodied in foreign exports (the same numerator) but as a share of total gross exports of the country
producing the final exporter's inputs. Both show a slightly decreasing trend over the sample period
1995–2010 and a stronger drop in 2008, followed by a recovery in the two years following the global
financial crisis.
Figure 2 depicts the evolution of the total value of all cross-border outward M&As. Clearly, there
is substantial variation over time, with periods of rapid increase followed by periods of rapid decline.
Two merger waves can be identified: the first took place over the period 1996–1999 and the second
between 2003 and 2007. The decline after the global financial crisis was more rapid than that started
in 1999. Over the period analysed, cross-border M&As reached their peak value in 2007.
17
Baseline results based on the sample of all countries, available from the authors upon request, are in line with results
presented in following section.
18
Keeping singleton groups in regressions with multiple fixed effects and cluster-robust standard errors is computationally
inefficient and can overstate statistical significance, thus leading to incorrect inference.
12
| CIPOLLINA et al.
300000
250000
200000
M&As
150000
100000
50000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
F I G U R E 2 Outward cross-border mergers and acquisitions transaction values (in million dollars), 1995–2010.
Source: Elaborations on SDC Platinum Global Mergers and Acquisitions database, Thomson Financial Securities
Data.
Figure 3 reports total value of cross-border M&As between 1995 and 2010 for the 25 country pairs
that recorded the highest (Panel A) and the lowest (but positive; Panel B) total value of operations,
together with the associated averages of the bilateral forward and backward GVC participation indi-
ces. The country pairs that recorded the largest value of cross-border M&As are the United Kingdom
and the United States. For the country pairs having the United Kingdom as an acquirer and the United
States as a target in M&A operations, the GVC backward participation index is higher than the for-
ward GVC participation index, which implies that the foreign value added produced by the US and
incorporated in the UK exports as a share of the UK gross exports is higher that the UK value added
incorporated in US exports, as a share of the UK gross exports. For the symmetric country-pair United
States–United Kingdom, the two components are reversed. This evidence suggests that firms in the
UK are more likely to acquire the US suppliers of their inputs (the supplier target hypothesis) than the
users of their products in the US (the user target hypothesis). In the case of the last twenty-five country
pairs in terms of total value of M&A acquisitions (Panel B), the backward and forward GVC partici-
pation indices are lower than that reported in Panel A. These patterns provide some first evidence that
a higher GVC participation is associated with a stronger cross-border M&A activity.
Figure 4 mimics Figure 3, but focussing on sector pairs. Interestingly, the highest values are for
horizontal M&As, with both the acquirer and the target belonging to the same sector. As shown by
Panel A, the total value of operations is higher in the sectors of ‘Chemicals and non-metallic mineral
products’, ‘Mining and quarrying’, ‘Food products, beverages and tobacco’, ‘Electrical and optical
equipment’, ‘Machinery and equipment not classified elsewhere’, ‘Basic metals’ and ‘Wood, paper,
paper products, printing and publishing’. In all these cases, the backward and the forward GVC par-
ticipation indices are very similar. Panel B shows instead that the total value of vertical M&As, where
CIPOLLINA et al.
| 13
Panel A
United Kingdom - United States United Kingdom - United States
United States - United Kingdom United States - United Kingdom
United States - Canada United States - Canada
Netherlands - United Kingdom Netherlands - United Kingdom
Canada - United States
Canada - United States Germany - United States
Germany - United States Switzerland - United States
Switzerland - United States France - United States
France - United States United States - Germany
United States - Germany Belgium - United States
Belgium - United States Netherlands - United States
United Kingdom - Sweden
Netherlands - United States France - Germany
United Kingdom - Sweden Netherlands - Luxembourg
France - Germany United States - France
Netherlands - Luxembourg United Kingdom - Netherlands
United States - France Brazil - Canada
United Kingdom - Netherlands United States - Australia
Brazil - Canada United States - Netherlands
France- United Kingdom
United States - Australia Germany - United Kingdom
United States - Netherlands United Kingdom - Australia
France- United Kingdom United States - Sweden
Germany - United Kingdom Germany - Switzerland
United Kingdom - Australia Switzerland - Canada
United States - Sweden Italy - United States
Germany - Switzerland
Switzerland - Canada 0 .03 .06 .09 .12
Italy - United States
GVC backward component GVC foward component

0 50,000 100,000 150,000 200,000 250,000
M&As
Panel B
Spain - Finland Spain - Finland
Switzerland - Thailand Switzerland - Thailand
Canada- Vietnam Canada- Vietnam
Italy- Bulgaria Italy- Bulgaria
Sweden - South Africa Sweden - South Africa
Denmark- Czech Republic
Denmark- Czech Republic Spain - Romania
Spain - Romania Singapore - Lithuania
Singapore - Lithuania Australia -Israel
Australia -Israel Singapore- Hungary
Singapore- Hungary France- Portugal
France- Portugal Belgium- Ireland
Belgium- Ireland Mexico - Malaysia
Mexico - Malaysia Japan -Israel
Japan -Israel France- Vietnam
France- Vietnam Spain - Bulgaria
Canada - Malaysia
Spain - Bulgaria
Japan- Poland
Canada - Malaysia Sweden- Romania
Japan- Poland Japan- Vietnam
Sweden- Romania Belgium- Poland
Japan- Vietnam Australia - Japan
Belgium- Poland Japan - Czech Republic
Australia - Japan Belgium- Romania
Japan - Czech Republic Italy- Hungary
Belgium- Romania
Italy- Hungary
0 .004 .008 .012 .016
0 1 2 3 4 5 GVC backward component GVC foward component
M&As
F I G U R E 3 Country-pair M&As and GVC components

Notes: Panel A reports on the left-hand side the first twenty-five country pairs in terms of M&As averaged over the
sample period, 1995–2010, and on the right-hand side the bidder backward and forward GVC components. Panel B
reports on the left-hand side the last twenty-five country pairs in terms of M&As averaged over the sample period,
1995–2010, and on the right-hand side the bidder backward and forward GVC components. M&As transaction levels
are in million dollars and GVC in percentages. The first country in the pair is the bidder the second is the target.
Source: Elaborations on SDC Platinum Global Mergers and Acquisitions database, Thomson Financial Securities Data
and on OECD-WTO TiVA database, edition 2016, accessible at: https://stats.oecd.org/.
the acquirer and the target belong to different sectors, is smaller. The last 25 sector pairs showing a
positive total value of cross-border M&As are ‘Wood, paper, paper products, printing and publishing’-
‘Transport equipment’, ‘Food products, beverages and tobacco’-‘ Machinery and equipment not clas-
sified elsewhere’, and ‘Transport equipment’-‘Basic metals’. Interestingly, with few exceptions, GVC
participation indices are on average higher in the case of the sector pairs associated with a smaller
value of cross-border M&As. A correct appraisal of the link between the GVC participation and cross-
border M&As thus requires to control rigorously for both country and sector characteristics.
Table 1 reports the descriptive statistics of the GVC participation indexes and of the M&A trans-
action values, both for the entire sample and for the subsample of sector countries with non-zero
transactions. Panel A reports the descriptive statistics calculated over the estimation sample including
66,303 observations, where the M&As are averaged over the period 2000–2010 and GVC indexes are
averaged over 1995–1999. Both M&A and GVC participation display a very high variability. In par-
ticular, the average value of M&A transactions is 12.38 million dollars, with amounts ranging from
14
| CIPOLLINA et al.
Panel A
C23T26 - C23T26 C23T26 - C23T26

C10T14 - C10T14 C10T14 - C10T14
C15T16 - C15T16 C15T16 - C15T16
C30T33 - C30T33 C30T33 - C30T33
C29 - C29 C29 - C29
C27 - C27
C27 - C27 C20T22 - C20T22
C20T22 - C20T22 C23T26 - C10T14
C23T26 - C10T14 C30T33 - C23T26
C30T33 - C23T26 C29 - C23T26
C29 - C23T26 C30T33 - C29
C30T33 - C29 C34T35 - C34T35
C34T35 - C34T35 C10T14 - C23T26
C10T14 - C23T26 C29 - C30T33
C29 - C30T33 C28 - C28
C28 - C28 C23T26 - C30T33
C23T26 - C30T33 C17T19 - C20T22
C17T19 - C17T19
C17T19 - C20T22 C29 - C34T35
C17T19 - C17T19 C36T37 - C36T37
C29 - C34T35 C27 - C10T14
C36T37 - C36T37 C23T26 - C36T37
C27 - C10T14 C34T35 - C29
C23T26 - C36T37 C15T16 - C23T26
C34T35 - C29 C36T37 - C23T26
C15T16 - C23T26 C30T33 -C34 T35
C36T37 - C23T26
C30T33 -C34 T35
0 .2 .4 .6 .8
0 200,000 400,000 600,000 GVC backward component GVC foward component

M&As
Panel B
C17T19 - C29 C17T19 - C29
C29 - C01T05 C29 - C01T05
C28 - C34T35 C28 - C34T35
C17T19 - C27 C17T19 - C27
C10T14 - C01T05 C10T14 - C01T05
C17T19 - C28
C17T19 - C28 C01T05 - C36T37
C01T05 - C36T37 C27 - C34T35
C27 - C34T35 C28 - C10T14
C28 - C10T14 C29 - C15T16
C29 - C15T16 C15T16 - C28
C15T16 - C28 C34T35 - C20T22
C34T35 - C20T22 C15T16 - C30T33
C15T16 - C30T33 C30T33 - C10T14
C30T33 - C10T14 C30T33 -C15T16
C30T33 -C15T16 C10T14 - C28
C10T14 - C28 C20T22 - C10T14
C15T16 - C10T14
C20T22 - C10T14 C27 - C01T05
C15T16 - C10T14 C17T19 - C34T35
C27 - C01T05 C20T22 - C27
C17T19 - C34T35 C10T14 - C15T16
C20T22 - C27 C17T19 - C01T05
C10T14 - C15T16 C34T35 - C27
C17T19 - C01T05 C15T16 - C29
C34T35 - C27 C20T22 - C34T35
C15T16 - C29
C20T22 - C34T35
0 .002 .004 .006 .008 .01
0 20 40 60 80 100 GVC backward component GVC foward component
M&As
F I G U R E 4 Sector-pair M&As and GVC components

Notes: Panel A reports on the left-hand side the first twenty-five sector pairs in terms of M&As averaged over the
sample period, 1995–2010, and on the right-hand side the bidder backward and forward GVC components. Panel
B reports on the left-hand side the last twenty-five sector pairs in terms of M&As averaged over the sample period,
1995–2010, and on the right-hand side the bidder backward and forward GVC components. M&As transaction levels
are in million dollars and GVC in percentages. The first sector in the pair is the bidder the second is the target. Source:
Elaborations on SDC Platinum Global Mergers and Acquisitions database, Thomson Financial Securities Data and
on OECD-WTO TiVA database, edition 2016, accessible at: https://stats.oecd.org/.
zero to over 78 billion dollars. Considering only sector countries with a strictly positive value of cross-
border M&As, the average increases significantly (332 million dollars), with a minimum value of just
100,000 dollars. The backward GVC participation index, adopted to test the supplier hypothesis, is on
average 0.005%, with values ranging from zero to 11.40% and a standard deviation of 0.063. Similarly,
the forward GVC participation, our key explanatory variable in the user hypothesis, shows an average
value of 0.004%, with values ranging from zero to 2.12% and a standard deviation of 0.029.19 Panel B
of Table 1 reports the descriptive statistics calculated over the sample of 561,989 observations used in
the panel estimation, where M&As are averaged over five non-overlapping three years periods in the
range 1995–2010 and the explanatory variables are the beginning of the three years period GVC par-
ticipation. M&As are on average 1.052 million dollars, with values ranging between zero and 19
19
These small values are not surprising since this measure is the share of sector value added, re-exported to other countries
and user/supplier country's gross exports.
CIPOLLINA et al.
| 15
TABLE 1 Descriptive statistics
No.
Variable Mean SD Min Max obs.
Panel A—Cross-section data
Cross-border M&A 12.378 422.404 0 78,381 66,303
Cross-border 332.392 2,164.931 0.1 78,381 2,469
M&A > 0
Backward GVC 0.005 0.063 0 11.398 66,303
Forward GVC 0.004 0.029 0 2.116 66,303
Panel B—Panel data
Cross-border M&A 1.052 78.783 0 19,266 561,989
Cross-border 439.947 1550.486 0.1 19,266 1,344
M&A > 0
Backward GVC 0.003 0.036 0 9.723 561,989
Forward GVC 0.003 0.033 0 7.766 561,989
Notes: M&A are in million dollars and GVC in percentages.
TABLE 2 Summary statistics of country characteristics
Variable Mean SD Min Max

Rule of law 0.96 0.916 −0.896 1.959
Regulatory quality 1.02 0.74 −0.625 1.902
Property rights 70.832 21.25 10.313 90.667
Note: Data on rule of law and regulatory quality are collected by the World Governance Indicators (WGI) project and are available at:
https://info.worldbank.org/governance/wgi/home. Data on property rights are collected by the Heritage Foundation and are accessible
at https://www.heritage.org/index/explore.
billion dollars. Considering only positive M&As, the average value is equal to 440 million dollars.
GVC participation indexes show average values and variations slightly lower than those of the cross-
section sample.
To test the additional hypotheses that some institutional features affect the link between GVC
participation and M&As, we also collected data on a number of country-specific characteristics.
Descriptive statistics of these indicators are reported in Table 2. First, we consider governance quality,
that we measure using the World Governance Indicators (WGI) of Kaufmann et al. (2007), focussing
specifically on rule of law, regulatory quality and control of corruption. The first indicator (rule of
law) measures of the extent to which agents have confidence in and abide by the rules of society, and
in particular the quality of contract enforcement, property rights, police and courts, as well as the like-
lihood of crime and violence. Regulatory quality captures the ability of the government to formulate
and implement sound policies and regulations, that permit and promote private sector development,
allowing swifter contracting and better enforcement. The lowest value for rule of law is that of Russia
(−0.90), whereas the lowest regulatory quality is that of Vietnam (−0.63). On the other hand, the
maximum value for rule of law is that of Finland (1.96) and for regulatory quality is that of Singapore
(1.90). The property rights indicator, which we measure using an index produced by the Heritage
foundation, based on the ability to accumulate private property and wealth, ranges from 10.31 in
Vietnam to 90.67 in New Zealand.
16
| CIPOLLINA et al.
TABLE 3 Supplier target hypothesis: baseline results over the entire period
(1) (2) (3)
PPML LSDV LSDV

*** *
backward GVCjz,ih 4.49 4.59 0.69
(0.99) (2.72) (0.99)
N 66,303 66,303 66,302
2
Pseudo R .606
adj. R2 .083 .297
Fixed effect groups hz ih jz hz ih jz ijh ijz
ihz jhz
Note: The baseline PPML results (column 1) and the LSDV results (columns 2 and 3) estimated on the entire sample, averaging
backward GVC participation indexes over the period 1995–1999 and M&A transactions from sector i in country h to sector j in
country z over the period 2000–2010. Dependent variable in LSDV models is log(1 + M&A). Included (unreported) fixed effect are
country-pair fixed effects and country sector-specific fixed effects in columns 1 and 2; and country pairs and exporting sector, country
pairs and importing sector, sector pairs and exporting country, sector pairs and importing country in column 3. Standard errors,
reported in parentheses, are clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.
5 | BA S E L IN E R E S U LTS
5.1 | The supplier target hypothesis
The first hypothesis that we put under empirical scrutiny is that cross-border M&As are higher in the
case of upstream acquisitions, in which acquirers target the suppliers from which they import their
inputs. Table 3 reports the coefficients of the relationship of the backward GVC participation index of
the supplier sector in the user country/sector, averaged over the period 1995–1999, and M&A transac-
tions from the user to the supplier sector, averaged over the period 2000–2010. The sample includes
the cross-section of 66,303 sector-country observations. Estimates obtained using a PPML specifica-
tion are reported in column 1, whereas columns 2 and 3 show the results of the LSDV specification,
with different combination of fixed effects: country-pair fixed effects and country sector-specific
fixed effects (column 2) and all fixed effects (column 3). In all cases, the estimated coefficients are
semi-elasticities, measuring the percentage change of the value of cross-border M&As of a marginal
change of the GVC participation index.
The coefficient of 4.49 reported in column 1 is statistically significant at the 1% level. It indicates
that a one standard deviation variation in the backward GVC participation index (0.06%) is associated
with an increase in the value of cross-border M&As of about 0.27%.20 Using a LSDV specification
with the same set of fixed effects, we estimate a coefficient of 4.59, statistically significant at the 10%
level, which is very similar to that estimated using the PPML, indicating a similar result. When we
include in the LSDV specification the complete set of fixed effects, to account for all possible deter-
minants of M&A (column 3), the coefficient remains positive, but it drops to 0.69 and becomes statis-
tically insignificant. Overall, we find support to the supplier target hypothesis, which is broadly
confirmed using different econometric specifications; but the results show a rather small economic
impact.
20
It is worth recalling that the distribution of the index of backward GVC participation is extremely skewed, with a mean of
0.005%, a standard deviation of 0.06% and a maximum value of 11.4%.
CIPOLLINA et al.
| 17
TABLE 4 Supplier target hypothesis: different sample periods
(1) (2) (3)
1995–1999 for GVC and 1995–1999 for GVC and 2001–2004 for GVC and
2000–2007 for M&A 2008–2010 for M&A 2005–2010 for M&A
PPML PPML PPML

*** ***
backward 4.46 10.49 6.45***
GVCjz,ih (0.99) (2.93) (1.23)
N 58,549 19,276 45,449
Pseudo R2 .607 .688 .653
Fixed effect hz ih jz hz ih jz hz ih jz
groups
Note: The baseline PPML results estimated on different periods. In column 1, the backward GVC participation index is averaged
over the period 1995–1999 and M&A over the pre-crisis period (2000–2007); in column 2, the backward GVC participation index is
averaged over the period 1995–1999 and M&A over the post-crisis period (2008–2010). In column 3, the backward GVC is averaged
over the period 2001–2004 and M&A over the second wave (2005–2010). Included (unreported) fixed effect are country-pair fixed
effects and country sector-specific fixed effects. Standard errors, reported in parentheses, are clustered by country pairs. ***, **, *
denote significance at 1%, 5% and 10% levels.
Since the LSDV model including the full set of fixed effects gives results comparable to those of
the PPML specification, and the number of zeros in our data is significant, in the following we adopt
the latter as our preferred estimation method.21
As discussed above, Figure 2 shows a strong decrease in cross-border M&A transactions after the
financial crisis. For this reason, we replicate our analysis distinguishing the impact of the GVC partic-
ipation index, averaged over the period 1995–1999, in the periods before and after the global financial
crisis (2000–2007 and 2008–2010, respectively). Results reported in Table 4 show that the sign and
significance of GVC participations remain unchanged. The coefficient of 4.46 for the pre-crisis pe-
riod, statistically significant at the 1% level, is close to that reported in column 1 of Table 3. However,
when we consider the post-crisis cross-border M&As (column 2), the coefficient of 10.49 implies that
for a one standard deviation change in GVC participation index, M&As increase by 0.63%. With the
financial crisis, the role of GVCs became a much more relevant determinant of foreign acquisitions
than before the crisis. Since the value of cross-border M&As shows two major waves during our sam-
ple period, we have also analysed the association between the average participation in GVCs over the
period 2001–2004 and the value of cross-border M&A transactions in 2005 and 2010 (column 3 of
Table 4). Reassuringly, also in this case, we find a positive and statistically significant coefficient of
GVC participation, equal to 6.45.
5.2 | The user target hypothesis
The second hypothesis that we test is that cross-border M&As are higher in the case of downstream
operations, in which the acquirers target the users which import their products.
21
Our main results on the impact of GVC are robust to the inclusion of gravity variables (such as distance, common language,
colonial links, contiguity and remoteness indexes) in place of the set of country-pair fixed effects. See the results in Table B1
and B2 in Appendix B.
18
| CIPOLLINA et al.
TABLE 5 User target hypothesis: baseline results over the entire period
(1) (2) (3)
PPML LSDV LSDV

* ***
forward GVCih,jz 3.93 19.26 5.03***
(2.04) (2.68) (1.45)
N 66,303 66,303 66,302
2
Pseudo R .600
adj. R2 .101 .298
Fixed effect groups hz ih jz hz ih jz ijh ijz
ihz jhz
Note: The baseline PPML results (column 1) and the LSDV results (columns 2 and 3) estimated on the entire sample, averaging
forward GVC participation indexes over the period 1995–1999 and M&A transactions from sector i in country h to sector j in country
z over the period 2000–2010. Dependent variable in LSDV models is log(1 + M&A). Included (unreported) fixed effect are country-
pair fixed effects and country sector-specific fixed effects in columns 1 and 2; and country pairs and exporting sector, country pairs
and importing sector, sector pairs and exporting country, sector pairs and importing country in column 3. Standard errors, reported in
parentheses, are clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.
The results reported in Column 1 of Table 5 provide support also to this second hypothesis. The
coefficient of 3.93, statistically significant at the 10% level, implies that an increase in GVC participa-
tion of one standard deviation (0.03%) determines an increase in cross-border M&As by 0.12%. The
coefficient obtained estimating a LSDV model with the same set of dummy variables as in the PPML
specification (Column 2) is 19.26, about one order of magnitude larger, and it is statistically signif-
icant at the 1% level of confidence. If instead we include all fixed effects (Column 3), the estimated
coefficient is 5.03, and it is still statistically significant at the 1% level. Overall, we thus find support
also for the user target hypothesis.
Results in Table 6 confirm that, also considering different sample periods to test the user tar-
get hypothesis, the previous findings are broadly unchanged. Interestingly, also in the case of the
supplier target hypothesis, the positive impact of GVCs on cross-border M&As is stronger in the
years following the global financial crisis. Moreover, it is confirmed across different time periods,
as shown by the coefficient of 9.79 and 4.13, respectively, both statistically significant at the 1%
level of confidence.
Taken as a whole, our results show that the involvement in GVCs has a positive and statistically
significant impact on cross-border M&As, both upstream and downstream. However, the economic
significance of GVC involvement is low, confirming the results obtained by the previous literature
using aggregated data.22
Our econometric specification allows to control perfectly for the impact of country and sector
characteristics by means of the fixed effects included. However, as argued above, country and sector
characteristics may have an impact on the extent to which GVC participation is correlated to cross-
border M&As. In the following, we will test this additional set of hypotheses.
22
From Table 5 of Martínez-Galán and Fontoura (2019), it is possible to derive that a one standard error increase in the index
of GVC participation of country i increases its stock of FDI by 0.26%, and a comparable increase in the index of GVC
participation of partner country j increases the stock of FDI in country i by 0.32%.
CIPOLLINA et al.
| 19
TABLE 6 User target hypothesis: different sample periods
(1) (2) (3)
1995–1999 for GVC and 1995–1999 for GVC and 2001–2004 for GVC and
2000–2007 for M&A 2008–2010 for M&A 2005–2010 for M&A
PPML PPML PPML

*** ***
forward 3.42 9.79 4.13***
GVCih,jz (1.60) (3.02) (1.27)
N 58,549 19,276 45,449
Pseudo R2 .599 .677 .637
groups
Note: The baseline PPML results estimated on different periods. In column 1, the forward GVC participation index is averaged
over the period 1995–1999 and M&A over the pre-crisis period (2000–2007); in column 2, the forward GVC participation index is
averaged over the period 1995–1999 and M&A over the post-crisis period (2008–2010). In column 3, the forward GVC is averaged
over the period 2001–2004 and M&A over the second wave (2005–2010). Included (unreported) fixed effect are country-pair fixed
effects and country sector-specific fixed effects. Standard errors, reported in parentheses, are clustered by country pairs. ***, **, *
denote significance at 1%, 5% and 10% levels.
6 | T H E ROL E OF COU N T RY AND SECTOR

CH A R AC T E R IST IC S
6.1 | Country-level characteristics
The 47 target countries included in our sample have very different institutional characteristics, as
shown by the descriptive statistics reported in Table 2. In general, the literature on FDIs has shown
that when the target country has an institutional environment which is more supportive of market
transactions, bidder firms face fewer impediments in acquiring their targets. However, when consid-
ering the role of GVC participation, institutional quality may have also an impact on the incentives
to strengthen the links with suppliers and users. Within our framework of analysis, this introduces an
opposite force with respect to the one traditionally considered in the FDI literature, suggesting the
stronger participation in a global value chain increases the incentives to acquire firms in countries
with a worse institutional environment. Since these two forces pull in opposite directions, which pre-
vails is indeed an empirical matter.
To verify whether and how institutional quality affects our results, we split the sample of target
countries into two subsamples, depending on the level of the institutional quality indicators consid-
ered. Table 7 focuses on the supplier target hypothesis. Columns 1 and 2 present the results obtained
using the PPML estimator on the two subsamples of target countries with rule of law below and
above its value at the first quartile of the distribution, respectively.23 The coefficient estimated in the
subsample of target countries with a low level of rule of law is 9.06 (column 1), significantly larger
than that estimated in the remaining subsample (4.57; column 2). The effect of GVCs on cross-
border M&As is therefore stronger when input suppliers are in countries with worse institutions,
most likely because there is less certainty on the trade relationships. In the case of the two other
measures of institutional quality, the sample is split depending on whether their level in the target
23
In unreported regressions, available upon request, we have verified that there are no significant differences among the
effects of GVCs for target countries in the second, third and fourth quartile of the distribution.
20
| CIPOLLINA et al.
TABLE 7 Supplier target hypothesis: sample split by institutional quality of target country
(1) (2) (3) (4) (5) (6)
Rule of law Regulatory quality Property rights
Low High Low High Low High
PPML PPML PPML

*** *** *** ***
Backward 9.06 4.57 4.88 4.61 12.31*** 4.54***
GVCjz,ih (3.05) (1.07) (1.22) (1.10) (3.77) (1.06)
N 21,042 37,171 21,014 37,515 24,676 34,330
2
Pseudo R .566 .602 .560 .603 .552 .552
groups
Note: The PPML results estimated on two subsamples of countries for each characteristic, averaging backward GVC participation
indexes over the period 1995–1999 and M&A transaction from sector i in country h to sector j in country z over the period 2000–
2010. Low subsample includes countries in the first quartile of rule of law, or below the median of regulatory quality and property
rights. High subsample includes the remaining countries. Included (unreported) fixed effect are country pair and country sector.
Standard errors, reported in parentheses, are clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.
TABLE 8 User target hypothesis: sample split by institutional quality of target country
(1) (2) (3) (4) (5) (6)
Rule of law Regulatory quality Property rights
Low High Low High Low High
PPML PPML PPML

*** ** *** **
Forward 2.60 4.35 2.54 4.32 2.62*** 4.31**
GVCih,jz (0.77) (2.10) (0.89) (2.09) (0.89) (2.07)
N 21,042 37,171 21,014 37,515 24,676 34,330
2
pseudo R .567 .594 .557 .595 .551 .594
groups
Note: The PPML results estimated on two subsamples of countries for each characteristic, averaging forward GVC participation
indexes over the period 1995–1999 and M&A transactions from sector i in country h to sector j in country z over the period 2000–
2010. Low subsample includes countries in the first quartile of rule of law, or below the median of regulatory quality and property
rights. High subsample includes the remaining countries. Included (unreported) fixed effect are country pair and country sector.
Standard errors, reported in parentheses, are clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.
country is above or below the sample median.24 Columns 3 and 4 show that also higher regulatory
quality slightly reduces the coefficient of GVC participation: the coefficients for the two subsam-
ples is 4.88 (column 3) for countries with low regulatory quality and 4.61 (column 4) for those with
high regulatory quality. Similar results are obtained considering the index of respect of property
24
In unreported regressions, available upon request, we have verified that there are no significant differences among the
effects of GVCs for target countries between the first and the second quartile, and between the third and the fourth quartile of
the distribution.
CIPOLLINA et al.
| 21
TABLE 9 Supplier target and user target hypothesis: sample split by sector level of GVC
(1) (2) (3) (4)
high GVC
low GVC sector high GVC sector low GVC sector sector
Supplier's hypothesis User's hypothesis
PPML PPML PPML PPML

*** ***
Backward GVCjz,ih 11.58 4.55
(4.16) (1.15)
Forward GVCjh,jz 3.07 7.02***
(14.19) (1.96)
N 17,058 26,500 17,058 26,500
pseudo R2 .764 .629 .761 .631
Fixed effect groups hz ih jz hz ih jz
Note: The PPML results estimated on two subsamples of sectors, averaging GVC participation index over the period 1995–1999 and
M&A transaction from sector h in country i to sector z in country j over the period 2000–2010. Low subsample includes sector pair
with value added as a share of gross country-level exports below the sample median (0.001). High subsample includes sector pair with
value added as a share of gross country-level exports above the sample median (0.001). Standard errors, reported in parentheses, are
clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.
rights, with coefficients of 12.31 for levels below the median (column 5) and 4.54 for those above
the median (column 6). In all cases, the estimated coefficients are statistically significant at the 1%
level of confidence.
Table 8 has the same structure of Table 7, but it focuses on the user target hypothesis. The
pattern is in this case the opposite. The coefficient estimated in the subsample of target countries
with a low level of rule of law is 2.60 (column 1), significantly smaller than that estimated in the
remaining subsample, that is 4.35 (column 2).25 The effect of GVCs on cross-border M&As is
therefore stronger when targets are in countries with better institutions, most likely because bidder
firms are less constrained in their ability to react to the incentives coming from participations in
the global value chains, consistent with the traditional evidence on FDIs. In the case of the two
other indices, the sample is split depending on whether the level in the target country is above or
below the sample median.26 Columns 3 and 4 show that also lower regulatory quality has a mod-
erating effect: the estimated coefficient of the GVC participation is 2.54 (column 3) in countries
with low levels of regulatory quality and 4.32 (column 4) in countries with high levels of this
indicator. Likewise, a stronger respect of property rights has a magnifying effect on the relation-
ship between the GVC participation and foreign M&As, as it is confirmed by the higher value of
the coefficients estimated in the subsample of countries where the index has values above the
median (2.62; column 5) relative to that of countries where the index is below the median (4.31;
column 6).
25
As before, in unreported regressions, available upon request, we have verified that there are no significant differences
among the effects of GVCs for target countries in the second, third and fourth quartile of the distribution.
26
Also in this case, in unreported regressions, available upon request, we have verified that there are no significant differences
among the effects of GVCs for target countries between the first and the second quartile, and between the third and the fourth
quartile of the distribution.
22
TABLE 10 Supplier target and user target hypothesis: industry-wise analysis

|
(1) (2) (3) (4)

Acquirer Target Acquirer Target
Supplier target hypothesis Supplier target hypothesis User target hypothesis User target hypothesis
(Backward) (Backward) (Forward) (Forward)
Agriculture, hunting, forestry and 2.10 26.20 24.85 120.73
fishing (34.18) (21.12) (25.34) (73.74)
**
Mining and quarrying 49.89 −1.75 −0.54 44.52
(22.55) (6.40) (1.78) (27.46)
*** ***
Food, beverages and tobacco −13.87 132.38 187.80 −10.13
(23.78) (32.19) (45.51) (37.57)
*** ***
Textiles products 23.24 45.55 89.66 35.41*
(6.44) (16.15) (70.75) (20.98)
Wood, paper products, printing and 7.60** 6.88* 23.74*** 22.96***
publishing (3.37) (3.66) (3.14) (3.92)
Chemicals and non-metallic mineral 5.29*** 5.06*** 10.40*** 5.51**
prod. (1.64) (1.49) (1.69) (2.31)
*** **
Basic metals 20.51 35.15 18.65 26.84
(14.01) (10.61) (7.86) (26.55)
*** *** ***
Fabricated metal products 123.52 27.50 33.63 42.27
(38.23) (10.11) (10.48) (29.31)
*** *** ***
Machinery and equipment, nec 24.04 39.46 68.25 33.44***
(6.96) (12.42) (11.39) (8.64)
Electrical and optical equipment 4.44*** 4.50*** 3.22*** 2.68***
(0.79) (0.78) (1.19) (0.93)
Transport equipment 3.92 7.16** 20.72*** 16.27***
(3.12) (3.43) (6.23) (4.50)
CIPOLLINA et al.
(Continues)
CIPOLLINA et al.
TABLE 10 (Continued)
(1) (2) (3) (4)

Acquirer Target Acquirer Target
Supplier target hypothesis Supplier target hypothesis User target hypothesis User target hypothesis
(Backward) (Backward) (Forward) (Forward)
Manufacturing nec; recycling 63.29*** 126.18** 166.96*** 88.36
(20.05) (64.04) (47.68) (62.03)
Constant 5.44*** 5.40*** 5.34*** 5.45***
(0.10) (0.09) (0.07) (0.10)
N 66,303 66,303 66,303 66,303
Pseudo R2 .611 .616 .623 .611
Fixed effect groups
Note: The baseline PPML results estimated on the entire sample, averaging GVC participation indexes over the period 1995–1999 and M&A transactions from the user to the supplier sector over the
period 2000–2010. Included (unreported) fixed effect are country-pair fixed effects and country sector-specific fixed effects. Standard errors, reported in parentheses, are clustered by country pairs. ***,
**, * denote significance at 1%, 5% and 10% levels.

|
23
24
| CIPOLLINA et al.
6.2 | Sectors’ participation in GVCs
The descriptive statistics reported in Table 1 show a high degree of heterogeneity in the level of GVC
participation across sectors and countries (see also Figures 3 and 4). For this reason, we have verified
whether the positive link between the GVC participation and cross-border M&As is different for high
and low levels of integration. Table 9 reports the results obtained estimating the user's and supplier's
hypotheses on the two subsamples of origin and destination sector-pair that show values of the GVC
participation index below and above the sample median.
In the case of the supplier target hypothesis, the coefficient estimated in the subsample of sectors
with low GVC participation is 11.58 (Column 1), while that estimated in the remaining subsample
is 4.55 (Column 2); both are statistically significant at the 1% level. Identical increases in the index
of GVC participation are therefore strongly associated with M&As in the case of less integrated sec-
tors: an increase in one standard deviation, calculated on the whole sample, determines an increase
of 6.8% for the subsample of sectors with an index of GVC participation below the median, and of
2.1% for those above the median. However, since the standard deviation of the index of GVC partic-
ipation is much larger for sectors with higher indices (it is 0.09, as opposed to 0.01 for those below
the sample median), a one standard deviation increase in GVC participation, calculated within each
subsample, determines an increase in M&As of 1.5% for less integrated sectors and 2.8% for those
more integrated.
In the case of the user target hypothesis, the results are the opposite: the coefficient estimated in
the subsample of sectors with low GVC participation is 3.07 (Column 3), and it is not even statistically
significant, while that estimated in the remaining subsample is 7.02 (Column 4), and it is statistically
significant at the 1% level. Identical increases in the index of GVC participation have therefore a
stronger effect on M&As in the case of more integrated sectors: an increase in one standard deviation
calculated on the whole sample, determines an increase of 0.8% for the subsample of sectors with
an index of GVC participation below the median, and of 1.5% for those above the median (0.1% and
2.0%, respectively, calculating the standard deviation within each subsample).
Overall, these results provide broad support to our previous findings. The correlation between the
GVC participation and cross-border M&As is indeed different depending on the level of international
integration, but it is statistically significant and economically small in most of the cases considered.
6.3 | Industry-level characteristics
To further investigate the degree of heterogeneity of our results across sectors, we have extended our
analysis estimating the relationship between the GVC participation and cross-border M&As sepa-
rately for each of the 12 (supplier and user) sectors in our sample.27 For the two hypotheses that we
put under scrutiny, user target and supplier target, we can focus either on the sector of activity of the
bidder firm, or on that of the target firms. We have therefore four different cases, which are presented
in Table 10.
The overall picture confirms our previous findings, that GVC participation has a positive effect on
cross-border M&As. Although in some cases the estimated coefficients are not statistically significant
(typically because they are imprecisely estimated, as shown by the large standard errors), they are
positive for all but two sectors. Besides, when we estimate a negative coefficient, it is not statistically
27
We thank an anonymous referee for suggesting this analysis.
CIPOLLINA et al.
TABLE 11 Supplier target and user target hypothesis: upstreamness
(1) (2) (3) (4)
High upstreamness acquire Low Low upstreamness acquire High High upstreamness acquire Low upstreamness acquire Low
upstreamness target upstreamness target High upstreamness target upstreamness target
Panel A—supplier's hypothesis
Backward −0.37 25.08*** −11.54 4.90***
GVCjz,ih (24.59) (4.10) (33.13) (1.24)
N 508 1,094 798 41,352
Pseudo R2 .786 .881 .800 .621
Fixed effect hz ih jz
groups
Panel B—user's hypothesis
forward 13.81*** 2.88 −58.88 7.33***
GVCjh,jz (3.76) (113.40) (66.23) (1.89)
N 508 1,094 798 41,352
2
pseudo R .802 .841 .807 .621
Fixed effect hz ih jz
groups
Note:: The PPML results estimated on subsamples of sectors, averaging GVC participation indexes over the period 1995–1999 and M&A transactions from sector i in country h to sector j in country z
over the period 2000–2010. Low upstreamness subsample includes sectors with the indicator of upstreamness below 3. High upstreamness subsample includes sectors with the indicator of upstreamness
above 3. Standard errors, reported in parentheses, are clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.

|
25
26
| CIPOLLINA et al.
significant. Interestingly, the size of the coefficient, and therefore the economic impact, is rather het-
erogeneous. In the case of the supplier target hypothesis, we estimate sizeable coefficients in the case
of acquisitions by firms operating in the sector of ‘Fabricated metal products’ (with a coefficient of
123.52, statistically significant at the 1% level; Column 1), and of acquisitions of suppliers operating
in ‘Food, beverages and tobacco’ and in ‘Manufacturing activities not classified elsewhere’ (132.38
and 126.18; Column 2). In the case of the users target hypothesis, a very large coefficient of GVC par-
ticipation is estimated for acquirers operating in ‘Food, beverages and tobacco’ and ‘Manufacturing
activities not classified elsewhere’ (187.80 and 166.96, respectively; Column 3), and, to a smaller
extent, for targets operating in ‘Machinery and equipment, not classified elsewhere’ (33.44; Column
4). The link between the GVC participation and M&As is also large for targets in ‘Agriculture, hunt-
ing, forestry and fishing’, but the coefficient is estimated very imprecisely, and it is not statistically
significant.
6.4 | The role of upstreamness
The relationship between the GVC participation and M&As is different across sectors, and it is pos-
sibly related to their level of upstreamness, defined as the average distance of the stage of production
from the final use (Antràs et al., 2012). Indeed, it is more likely that a firm operating in a sector far
away from final use is an acquirer of a user of its products, therefore operating in a sector which is
downstream along the value chain. Symmetrically, it is more likely that a firm operating in a sector
close to final use is an acquirer of a supplier of its inputs, therefore operating in a sector which is
upstream along the value chain.
To verify this hypothesis, we re-estimate the baseline empirical model considering four different
subsamples of target and acquirer sectors, according to their level of upstreamness. To this aim, we
adopt the measure of upstreamness produced by Antràs et al. (2012), defined as the average dis-
tance from final use, calculated for 426 industries using the 2002 US Input-Output tables. This
measure ranges from a minimum of 1, for industries whose output goes only to final users, to higher
values, for industries involved in the processing of raw materials.28 We distinguish between high
and low levels of upstreamness adopting the same threshold of Antràs et al. (2012), which is equal
to 3. According to this classification, in our sample the two sectors with a high level of upstream-
ness are ‘Basic metals’ and ‘Mining and quarrying’, while all the other sectors have an upstream-
ness below 3.
Table 11 presents the results for both our hypotheses, supplier target (Panel A) and user target
(Panel B), and for four combinations: high upstreamness of bidder and low upstreamness of tar-
get (Column 1), low upstreamness of acquirer and high upstreamness of target (Column 2), high
upstreamness of both bidder and target (Column 3), and low upstreamness of bidder and target
(Column 4). Consistent with our expectations, we do not find evidence supporting the supplier tar-
get hypothesis when the acquirer is in a sector with a high level of upstreamness and the target is in
sector with low level of upstreamness (the estimated coefficient is −0.37 and it is not statistically
28
This indicator is available at https://scholar.harvard.edu/antras/publications. In order to map these industries to our 12
industries, we adopt two concordances: (i) the one between the Input-Output commodity codes at 6 digits and the
Harmonized Codes at 10-digits, retrieved from https://www.bea.gov/industry/benchmark-input-output-data and (ii) the one
between Harmonized Codes at 10-digits and SIC classification at 5-digits, obtained from https://www.macalester.edu/resea
rch/economics/PAGE/HAVEMAN/Trade. Resources/Concordances. Then, we collapsed the upstreamness indicator at the
3-digits SIC codes and we reconciled them with our industry classification, as described in Section 4.
CIPOLLINA et al.
| 27
TABLE 12 Supplier target and user target hypothesis: panel data analysis
(1) (2)
Supplier's hypothesis User's hypothesis

***
Backward GVCjz,ih 13.65
(5.24)
Forward GVCjh,jz 6.53***
(1.73)
M&A (lag) −1.71*** −1.55***
(0.21) (0.19)
Hansen test (p-value) .219 .072
N 561,989 561,989
The results of the system-GMM estimator. M&As equation is estimated using, as GMM-type instruments, lagged values of the
dependent variable dated t-2 and earlier and, as IV-type instruments, the lagged level of bilateral applied tariffs. Orthogonal deviation
is adopted to transform the equation in levels. Two-step and robust standard errors are reported in parentheses. Reported p-value
of the Hansen statistic tests the null hypothesis that the instruments used are not correlated with the residuals. ***, **, * denote
significance at 1%, 5% and 10% levels.
significant; Panel A, Column 1), and when both the acquirer and the target are in a sector with a high
level of upstreamness (−11.54; Panel A, Column 3). On the contrary, we find evidence confirming
the supplier target hypothesis when the acquirer is in sector with a low level of upstreamness and
the target in a sector with a high level of upstreamness, with an estimated coefficient of the index
of backward participation in GVCs of 25.08, statistically significant at the 1% level, and when both
the acquirer and the target are in a sector with a low level of upstreamness (4.90; Panel A, Column
4). Turning to the user target hypothesis, we find sustaining evidence when the acquirer is in a high
upstream sector and the target in a low upstream sector (31.81; Panel B, Column 1) and when they
are both in a low upstreamness sector (7.33; Panel B, Column 1), consistent with our expectations.
We find instead no support of the user target hypothesis when the acquirer is in low upstreamness
sector and the acquirer in a high upstreamness sector (2.88 and statistically insignificant; Panel B,
Column 2), and when they are both in a high upstreamness sector (−58.88 and statistically insignif-
icant; Panel B, Column 3).
Overall, these results provide additional evidence confirming that participation in GVCs is pos-
itively linked to cross-border M&As, which is consistent with firms acquiring their input suppliers
upstream on the value chain and, symmetrically, their output users downstream the value chain.
7 | PA N EL DATA A NA LYSIS
Our previous results control only indirectly for endogeneity, by adopting a specification that tests the
impact of the GVC averaged over a period and M&As averaged over the non-overlapping following
period, without considering dynamic linkages. To further check the robustness of our results, we esti-
mate equations (1) and (3) using the system-GMM estimator proposed by Arellano and Bover (1995)
and by Blundell and Bond (1998) for dynamic panel data. Since the first difference transformation in
panel estimates magnifies gaps in unbalanced panels (Roodman, 2009), we adopt the forward or-
thogonal deviation, as suggested by Arellano and Bover (1995). We thus estimate a system of two
28
| CIPOLLINA et al.
equations, one in levels and one transformed according to the orthogonal deviation.29 Since, as argued
above, M&A operations are not homogeneous through time and tend to come in waves, in our panel
the dependent variable is the average level of M&As over five non-overlapping three years periods in
the range 1995–2010, and the explanatory variables are the level of M&As and GVC participation
indices in the previous three-year period.
Columns 1 and 2 of Table 12 report the results obtained estimating the system-GMM estimator,
where the number of observations increases from 66,303 to 561,989. Consistent with our expectations
and the previous results, the coefficients of the GVC participation index are positive for both the
supplier (13.65) and the user hypothesis (6.53). Interestingly, the coefficient of the lagged dependent
variable is negative and statistically significant at 1% level, confirming that M&As come in waves.
Reassuringly, the p-values of the Hansen test of overidentifying restrictions allow in both cases to
reject the hypothesis that our instruments are endogenous. Overall, these additional findings provide
further support to our conclusion that GVC participation has a statistically significant, but economi-
cally negligible effect on cross-border M&As.
8 | CO NC LUSION S
Global value chains are a distinctive feature of the process of globalisation. By permitting to control
for the negative effects of potentially volatile market transactions, they allow to exploit the com-
parative advantages of each country to a larger extent, therefore producing first order effects on the
patterns of international trade. But the effect of GVCs is not limited to trade in goods and services.
Indeed, it is a very short step from deeper cross-border bilateral coordination between sellers and buy-
ers of intermediate goods to stronger forms of partnership, such as M&As. In fact, the growing stream
of literature that has applied the analytical framework of the theory of the firm to study the multination
corporations has already identified a number of factors that shape the optimal structure of ownership
along global value chains.
Our paper contributes to this literature by presenting empirical evidence of a causal effect of GVC
participation on cross-border M&As. We exploit information on bilateral GVC participation and
M&As for 12 sectors of 22 origin countries and 47 destination countries between 1995 and 2010.
The structure of our data allows to estimate a gravity equation model inflated with a large number of
bilateral sector and country fixed, that permit to limit significantly the impact of potentially omitted
factors.
Our results confirm the existence of a highly statistically significant causal impact of GVCs on
cross-border M&As, with both firms acquiring or merging with their suppliers and firms acquiring
or merging with their buyers. However, we estimate a rather small economic effect. This is likely to
be due to the fact that our specification includes a large set of fixed effects, which allows to control
for a large set of otherwise hidden common causes of GVC participation and M&As and therefore
constrains the positive bias that is present if they are omitted. In terms of policy implications, it ap-
pears that the impact on cross-border M&As is not a crucial aspect when evaluating the effects of the
integration of a country and a sector within a global value chain.
Finally, we find that the positive correlation between GVCs participation and M&As is affected by
the institutional characteristics of the countries where firms are located. Our analysis thus complements
29
Since the system GMM estimator takes orthogonal deviations of the variables at the level of each unit of observation, our
panel estimates do control for country of origin, industry of origin, country of destination and industry of destination fixed
effects.
CIPOLLINA et al.
| 29
the vast empirical literature on the determinants of firm internationalisation, providing additional evi-
dence that GVCs alter the optimal organisational structure of firms’ cross-border activities.
ORCID
Maria Cipollina https://orcid.org/0000-0002-1454-4039
Filomena Pietrovito https://orcid.org/0000-0002-3768-9791
Alberto Franco Pozzolo https://orcid.org/0000-0002-3994-2455
R E F E R E NC E S
Ahmad, N., Bohn, T., Mulder, N., Vaillant, M., & Zaclicever, D. (2017). Indicators on global value chains (OECD
Statistics Working Paper No. 2017/18). https://doi.org/10.1787/8502992f-en
Alfaro, L., Antràs, P., Chor, D., & Conconi, P. (2019). Internalizing global value chains: a firm-level analysis. Journal
of Political Economy, 127(2), 508–559. https://doi.org/10.1086/700935.
Allcott, H. (2015). Site selection bias in program evaluation. The Quarterly Journal of Economics, 130(3), 1117–1165.
https://doi.org/10.1093/qje/qjv015.
Al-Ubaydli, O., List, J. A., & Suskind, D. L. (2017). What can we learn from experiments? Understanding the threats to
the scalability of experimental results. American Economic Review, 107(5), 282–286.
Amador, J., & Cabral, S. (2017). Networks of value-added trade. The World Economy, 40(7), 1291–1313. https://doi.
org/10.1111/twec.12469.
Anderson, J. E., & Van Wincoop, E. (2003). Gravity with gravitas: A solution to the border puzzle. American Economic
Review, 93, 170–192. https://doi.org/10.1257/000282803321455214
Antràs, P. (2003). Firms, contracts, and trade structure. Quarterly Journal of Economics, 118, 1375–1418. https://doi.
org/10.1162/003355303322552829.
Antràs, P., & Chor, D. (2013). Organizing the global value chain. Econometrica, 81, 2127–2204. https://doi.org/10.3982/
ECTA10813.
Antràs, P., Chor, D., Fally, T., & Hillberry, R. H. (2012). Measuring the Upstreamness of production and trade flows
(NBER Working Paper No. w17819), Available at: SSRN: https://ssrn.com/abstract=1998614
Antràs, P., & Helpman, E. (2004). Global sourcing. Journal of Political Economy, 112, 552– 580. https://doi.
org/10.1086/383099.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to
employment equations. The Review of Economic Studies, 58, 277–297. https://doi.org/10.2307/2297968.
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models.
Journal of Econometrics, 68, 29–51. https://doi.org/10.1016/0304-4076(94)01642-D.
Baier, S. L., & Bergstrand, J. H. (2009). Estimating the effects of free trade agreements on international trade flows
using matching econometrics. Journal of International Economics, 77(1), 63–76. https://doi.org/10.1016/j.jinte
co.2008.09.006.
Baldwin, R., & Lopez-Gonzalez, J. (2015). Supply-chain trade: A portrait of global patterns and several testable hypoth-
eses. The World Economy, 38(11), 1682–1721. https://doi.org/10.1111/twec.12189.
Bénassy-Quéré, A., Coupet, M., & Mayer, T. (2007). Institutional determinants of foreign direct investment. The World
Economy, 30(5), 764–782. https://doi.org/10.1111/j.1467-9701.2007.01022.x.
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of
Econometrics, 87, 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8.
Bohn, T., Brakman, S., & Dietzenbacher, E. (2018). The role of services in globalisation. The World Economy, 41(10),
2732–2749. https://doi.org/10.1111/twec.12640.
Brakman, S., Garretsen, H., & Van Marrewjk, C. (2005) Cross-border mergers and acquisitions: On revealed compar-
ative advantage and merger waves (CESifo Working Paper 1602). Retrieved from: https://papers.ssrn.com/soL3/
papers.cfm?abstract_id=870389
Buelens, C., & Tirpák, M. (2017). Reading the footprints: How foreign investors shape countries’ participation in global
value chains. Comparative Economic Studies, 59, 561–584. https://doi.org/10.1057/s41294-017-0036-2.
Carril-Caccia, F., & Pavlova, E. (2020). Mergers and acquisitions & trade: A global value chain analysis. The World
Economy, 43(3), 586–614. https://doi.org/10.1111/twec.12882.
30
| CIPOLLINA et al.
Chakrabarti, A. (2001). The determinants of foreign direct investment: Sensitivity analyses of cross-country regressions.
Kyklos, 54(1), 89–114. https://doi.org/10.1111/1467-6435.00142.
Choi, J. (2020). The global value chain under imperfect capital markets. The World Economy, 43(2), 484–505. https://
doi.org/10.1111/twec.12897.
Coase, R. H. (1937). The nature of the firm. Economica, 4, 386–405. https://doi.org/10.1111/j.1468-0335.1937.tb000
02.x.
Daude, C., & Fratzscher, M. (2008). The pecking order of cross-border investment. Journal of International Economics,
74, 94–119. https://doi.org/10.1016/j.jinteco.2007.05.010.
de Sousa, J., & Lochard, J. (2011). Does the single currency affect foreign direct investment? The Scandinavian Journal
of Economics, 113(3), 553–578. https://doi.org/10.1111/j.1467-9442.2011.01656.x.
Dehejia, R., Pop-Eleches, C., & Samii, C. (2021). From local to global: External validity in a fertility natural experi-
ment. Journal of Business & Economic Statistics, 39(1), 217–243. https://doi.org/10.1080/07350015.2019.1639407.
Di Giovanni, J. (2005). What drives capital flows? The case of cross-border M&A activity and financial deepening.
Journal of International Economics, 65, 127–149. https://doi.org/10.1016/j.jinteco.2003.11.007.
Dunning, J. H. (1973). The Determinants of international production. Oxford Economic Papers, 25, 289–330. https://
doi.org/10.1093/oxfordjournals.oep.a041261.
Dunning, J. H. (1981). International production and the multinational enterprise. Unwin Hyman.
Eaton, J., & Kortum, S. (2002). Technology, geography, and trade. Econometrica, 70(5), 1741–1779. https://doi.org/1
0.1111/1468-0262.00352.
Eaton, J., & Tamura, A. (1994). Bilateralism and regionalism in Japanese and US trade and direct foreign investment
patterns. Journal of the Japanese and International Economies, 8, 478–510. https://doi.org/10.1006/jjie.1994.1025.
Erel, I., Liao, R. C., & Weisbach, M. S. (2012). Determinants of cross-border mergers and acquisitions. The Journal of
Finance, 67, 1045–1082. https://doi.org/10.1111/j.1540-6261.2012.01741.x.
Fally, T. (2015). Structural gravity and fixed effects. Journal of International Economics, 97(1), 76–85. https://doi.
org/10.1016/j.jinteco.2015.05.005.
Feenstra, R. C., & Jensen, J. B. (2012). Evaluating estimates of materials offshoring from US manufacturing. Economics
Letters, 117(1), 170–173. https://doi.org/10.1016/j.econlet.2012.04.069.
Grossman, S. J., & Hart, O. D. (1986). The costs and benefits of ownership: A theory of vertical and lateral integration.
Journal of Political Economy, 94, 691–719. https://doi.org/10.1086/261404.
Head, K., & Ries, J. (2008). FDI as an outcome of the market for corporate control: Theory and evidence. Journal of
International Economics, 74, 2–20. https://doi.org/10.1016/j.jinteco.2007.04.004.
Hillberry, R. H. (2011). Causes of international production fragmentation: Some evidence. SSRN Electronic Journal,
October(12), 77–102. https://doi.org/10.2139/ssrn.2179650
Hyun, H. J., & Kim, H. H. (2010). The determinants of cross-border M&As: the role of institutions and financial develop-
ment in the gravity model. The World Economy, 33(2), 292–310. https://doi.org/10.1111/j.1467-9701.2009.01224.x.
Jiménez, G., Ongena, S., Peydró, J. L., & Saurina, J. (2014). Hazardous times for monetary policy: What do twenty-three
million bank loans say about the effects of monetary policy on credit risk-taking? Econometrica, 82(2), 463–505.
https://doi.org/10.3982/ECTA10104.
Johnson, R. C. (2018). Measuring global value chains. Annual Review of Economics, 10, 207– 236. https://doi.
org/10.1146/annurev-economics-080217-053600.
Kaufmann, D., Kraay, A., & Mastruzzi, M. (2007). The worldwide governance indicators project: answering the critics
(Policy Research working paper no. WPS 4149). : World Bank. Retrieved from: http://documents.worldbank.org/
curated/en/979231468178138073/The-worldwide-governance-indicators-project-answering-the-critics
Markusen, J. R. (1984). Multinationals, multi-plant economies, and the gains from trade. Journal of International
Economics, 16, 205–226. https://doi.org/10.1016/S0022-1996(84)80001-X.
Martínez-Galán, E., & Fontoura, M. P. (2019). Global value chains and inward foreign direct investment in the 2000s.
The World Economy, 42(1), 175–196. https://doi.org/10.1111/twec.12660.
Meager, R. (2016). Aggregating distributional treatment effects: A bayesian hierarchical analysis of the microcredit
literature. MIT.
Roe, B. E., & Just, D. R. (2009). Internal and external validity in economics research: Tradeoffs between experi-
ments, field experiments, natural experiments, and field data. American Journal of Agricultural Economics, 91(5),
1266–1271.
CIPOLLINA et al.
| 31
Roodman, D. (2009). How to do Xtabond2: An introduction to difference and system GMM in stata. The Stata Journal,
9(1), 86–136. https://doi.org/10.1177/1536867X0900900106.
Rosenzweig, M. R., & Udry, C. (2020). External validity in a stochastic world: Evidence from low-income countries.
The Review of Economic Studies, 87(1), 343–381. https://doi.org/10.1093/restud/rdz021.
Rossi, S., & Volpin, P. F. (2004). Cross-country determinants of mergers and acquisitions. Journal of Financial
Economics, 74, 277–304. https://doi.org/10.1016/j.jfineco.2003.10.001.
Ruhl, K. J. (2015). How well is US intrafirm trade measured? American Economic Review, 105, 524–529. https://doi.
org/10.1257/aer.p20151045.
Silva, J. S., & Tenreyro, S. (2011). Further simulation evidence on the performance of the Poisson pseudo-maximum
likelihood estimator. Economics Letters, 112(2), 220–222. https://doi.org/10.1016/j.econlet.2011.05.008.
UNCTAD (2013). Global value chains and development. United Nations. Retrieved from: https://unctad.org/en/Publi
cationsLibrary/wir2013_en.pdf.
Xing, Y. (2011). How the iPhone widens the US trade deficit with China, VoxEU.org, 10 April. Retrieved from: https://
voxeu.org/article/how-iphone-widens-us-trade-deficit-china
Yotov, Y. V., Piermartini, R., Monteiro, J.-A., & Larch, M. (2016). An Advanced guide to trade policy analysis: The
structural gravity model. UNCTAD and WTO. Retrieved from: https://www.wto.org/english/res_e/booksp_e/advan
cedwtounctad2016_e.pdf
APPENDIX A
DATABASE DESCRIPTION
TABLE A1 Correspondence between TIVA STAN classification and SIC 3 digits
TIVA STAN classification SIC

C01T05—Agriculture, hunting, forestry and fishing 011; 013; 016; 017; 018; 019; 021; 024; 025; 027; 029;
071; 072; 075; 076; 078; 081; 083; 085; 091; 092; 097
C10T14—Mining and quarrying 101; 102;103; 104; 106; 109; 122; 123; 124; 131; 132;
138; 141; 142; 144; 145; 147; 149
C15T16—Food products, beverages and tobacco 201; 202; 203; 204; 205; 206; 207; 208; 209; 211; 212;
213; 214
C17T19—Textiles, textile products, leather and 221; 222; 223; 224; 225; 226; 227; 228; 229; 231; 232;
footwear 233; 234; 235; 236; 237; 238; 239; 267; 311; 313;
314; 315; 316; 317; 319
C20T22—Wood, paper, paper products, printing and 241; 242; 243; 244; 245; 249; 261; 262; 263; 265; 271;
publishing 272; 273; 274; 275; 276; 277; 278; 279
C23T26—Chemicals and non-metallic mineral 291; 299; 281; 282; 283; 284; 285; 286; 287; 289; 301;
products 302; 305; 306; 295; 321; 322; 323; 324; 325; 326;
327; 328; 329
C27—Basic metals 331; 332; 333; 334; 335; 336; 339
C28—Fabricated metal products 341; 342; 343; 344; 345; 346; 347
C29—Machinery and equipment, nec 348; 349; 351; 352; 353; 354; 355; 356; 358; 359; 363;
371; 374; 376; 379
C30T33—Electrical and optical equipment 357; 365; 366; 367; 381; 382; 384; 385; 386; 387; 361;
362; 364; 369
C34T35—Transport equipment 372; 373; 375
C36T37—Manufacturing nec; recycling 251; 252; 253; 254; 259; 308; 391; 393; 394; 395; 396;
399
32
| CIPOLLINA et al.
TABLE A2 List of countries
Origin countries Destination countries

Australia; Belgium; Brazil; Canada; China; Argentina; Australia; Austria; Belgium; Brazil; Bulgaria; Canada;
Denmark; Finland; France; Germany; Chile; China; Colombia; Czech Republic; Denmark; Finland;
Hong Kong; Ireland; Italy; Japan; Mexico; France; Germany; Hong Kong; Hungary; India; Indonesia;
Netherlands; Norway; Singapore; Spain; Ireland; Israel; Italy; Japan; Lithuania; Luxembourg; Malaysia;
Sweden; Switzerland; United Kingdom; Mexico; Netherlands; New Zealand; Norway; Peru; Philippines;
United States of America Poland; Portugal; Romania; Russian Federation; Singapore;
Slovakia; South Africa; Spain; Sweden; Switzerland; Thailand;
Turkey; United Kingdom; United States of America; Viet Nam
APPENDIX B
INCLUSION OF GRAVIT Y VARIABLES

For a further robustness check we test whether our main results on the impact of GVC are robust to
the inclusion of gravity variables in place of the set of fixed effects. The gravity variables included in
equations (1) and (3) are the following:
• The nominal GDP, in US dollars, of country h and z, respectively, GDPh and GDPz;
• The nominal GDP per capita, in US dollars, of country h and z, respectively, GDPpch and GDPpcz;
• The geodesic weighted distance between country h and country z, DISThz;
• The dummy Colony equal to 1 if h and z are linked by colonial ties;
• The dummy Common language equal to 1 if h and z share the same official language;
• The dummy Contiguity equal to 1 if h and z share a land border;
• The degree of openness calculated as the sum of imports and exports divided by the nominal GDP,
in US dollars, of country h and z, respectively, opennessh and opennessz;
• The remoteness indexes of country h and z, respectively, REMh and REMz, to control for multilat-
eral resistances and constructed as the logarithms of GDP-weighted distance averages (Baier &
Bergstrand, 2009).
Data on GDPs, import and exports are retrieved from the World Bank database (https://databank.
worldbank.org/source/world-development-indicators) and data for the remaining explanatory vari-
ables are from the Cepii dataset (http://www.cepii.fr/).
Tables B1 and B2 show that our main results on the impact of GVC are robust to the inclusion of
gravity variables. Our variables of interest for testing both supplier's and user's hypotheses still have
positive and significant coefficients. The estimated coefficients for the market size variables (proxied
by GDPs) are positive and statistically significant, consistent with the literature that, by far, widely
accepted the market size as a determinant of FDI flows (Chakrabarti, 2001).
As for transaction costs, the empirical literature on trade and FDI flows points out the roles of
geography settings. The coefficient of the bilateral distance between the main cities of country h
and country z denoted by (DIST) is negative and significant capturing correctly the higher transport
costs implied by the distance that adversely affects FDI. In the same vein, the positive and statisti-
cally significant coefficients of variables Colony, Common language and Contiguity imply that if two
countries are linked by colonial ties, share the same language or a land border, the transaction costs to
invest are lower and stimulate FDI flows between those two countries.
We also include a proxy for trade openness that is a relevant factor in the decision to invest, given
that most investment projects are directed towards the tradable sector. As trade openness is an indica-
tor of the absence of trade barriers, its coefficient is predicted to be positively signed, but the opposite
CIPOLLINA et al.
| 33
effect is predicted when an M&A is motivated by the desire to avoid high trade barriers, reduce trans-
port costs and gain access to foreign consumers (tariff-jumping hypothesis).
Finally, in accordance with the literature, the coefficients are positive and statistically significant of
the remoteness indexes that indicate the geographic position of countries along markets, are positive
and significant, confirming that, all else equal, FDI will be larger between countries that are more iso-
lated from the rest of the world than between countries that are situated closer to the rest of the world.
TABLE B1 Supplier target hypothesis: baseline results over the entire period
(1) (2) (3)
PPML LSDV LSDV

*** *
backward GVCjz,ih 0.42 4.96 2.60
(0.10) (2.88) (1.85)
***
lnGDPh 0.40 0.89 0.91***
(0.83) (0.15) (0.15)
lnGDPz 2.77*** 1.12*** 1.16***
(0.91) (0.16) (0.16)
lnGDPpch 0.23 0.25*** 0.24***
(0.17) (0.03) (0.03)
*** ***
lnGDPpcz 0.63 0.06 0.06***
(0.13) (0.02) (0.02)
* ***
lnDISThz −0.68 −0.24 −0.25***
(0.35) (0.03) (0.03)
***
Colonyhz 0.73 0.55 0.56***
(0.64) (0.20) (0.20)
Common languagehz −0.05 0.24** 0.24**
(0.43) (0.10) (0.10)
Contiguityhz −0.81 0.08 0.11
(0.53) (0.16) (0.16)
Opennessh 0.22 0.02 0.02
(0.21) (0.04) (0.04)
Opennessz 0.11 −0.04 −0.04
(0.22) (0.03) (0.03)
***
lnREMh −0.02 0.65 0.67***
(0.82) (0.14) (0.14)
** ***
lnREMz 2.20 0.88 0.90***
(0.90) (0.15) (0.15)
N 66,303 66,303 66,303
2
adj. R .011 .052 .208
Fixed effect groups i, j i, j ij
Note:: The baseline PPML results (column 1) and the LSDV results (columns 2 and 3) estimated on the entire sample, averaging
backward GVC participation indexes over the period 1995–1999 and M&A transactions from sector i in country h to sector j in
country z over the period 2000–2010. Dependent variable in LSDV models is log(1 + value of transaction). Included (unreported)
fixed effect are sector-specific fixed effects in columns 1 and 2; and sector pairs fixed effects in column 3. Standard errors, reported in
parentheses, are clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.
34
| CIPOLLINA et al.
TABLE B2 User target hypothesis: baseline results over the entire period
(1) (2) (3)
PPML LSDV LSDV

*** ***
forward GVCih,jz 2.08 20.03 12.05***
(0.27) (2.72) (1.87)
***
lnGDPh 0.29 0.77 0.83***
(0.86) (0.15) (0.15)
lnGDPz 2.75*** 1.00*** 1.08***
(0.94) (0.16) (0.16)
lnGDPpch 0.17 0.22*** 0.23***
(0.16) (0.03) (0.03)
*** ***
lnGDPpcz 0.63 0.06 0.06***
(0.13) (0.02) (0.02)
* ***
lnDISThz −0.66 −0.20 −0.22***
(0.36) (0.03) (0.03)
***
Colonyhz 0.74 0.54 0.55***
(0.64) (0.20) (0.20)
Common languagehz −0.06 0.25*** 0.25**
(0.43) (0.09) (0.10)
Contiguityhz −0.79 0.02 0.07
(0.53) (0.15) (0.15)
Opennessh 0.24 0.04 0.03
(0.22) (0.04) (0.04)
*
Opennessz 0.09 −0.07 −0.05
(0.22) (0.03) (0.03)
***
lnREMh −0.14 0.53 0.59***
(0.84) (0.14) (0.14)
lnREMz 2.20** 0.80*** 0.85***
(0.92) (0.15) (0.15)
N 66,303 66,303 66,303
adj. R2 .093 .073 .216
Fixed effect groups i, j i, j ij
Note: This table reports the baseline PPML results (column 1) and the LSDV results (columns 2 and 3) estimated on the entire
sample, averaging forward GVC participation indexes over the period 1995–1999 and M&A transactions from sector i in country h
to sector j in country z over the period 2000–2010. Dependent variable in LSDV models is log(1 + value of transaction). Included
(unreported) fixed effect are sector-specific fixed effects in columns 1 and 2; and sector pairs fixed effects in column 3. Standard
errors, reported in parentheses, are clustered by country pairs. ***, **, * denote significance at 1%, 5% and 10% levels.

Do Cross-Border Mergers and Acquisitions Reflect Participations Into Global Value Chains

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Do Cross-Border Mergers and Acquisitions Reflect Participations Into Global Value Chains

Uploaded by

Copyright:

Available Formats

Received: 6 January 2020

| Revised: 19 April 2021

Do cross-­border mergers and acquisitions reflect

Maria Cipollina1 | Filomena Pietrovito1 |

2 | AVA ILA B L E E V ID E NC E ON THE DETERM INANTS

Our empirical analysis aims at testing two symmetric hypotheses:

M&Aih,jz = 𝛽 1 backwardGVCjz,ih + 𝛿 ijh + 𝛿 ijz + 𝛿 ihz + 𝛿 jhz + 𝜀ihjz , (1)

Maximum Likelihood (PPML).

M&Aih,jz = 𝛽 1 forwardGVCih,jz + 𝛿 ijh + 𝛿 ijz + 𝛿 ihz + 𝛿 jhz + 𝜀ihjz , (3)

4.1 | Sources of data

1995 2000 2005 2010

F I G U R E 1 Backward and forward GVC participation, 1995–­2010 (percentages)

4.2 | Descriptive statistics

GVC backward component GVC foward component

0 1 2 3 4 5 GVC backward component GVC foward component

F I G U R E 3 Country-­pair M&As and GVC components

C23T26 - C23T26 C23T26 - C23T26

0 200,000 400,000 600,000 GVC backward component GVC foward component

0 20 40 60 80 100 GVC backward component GVC foward component

F I G U R E 4 Sector-­pair M&As and GVC components

TABLE 1 Descriptive statistics

TABLE 2 Summary statistics of country characteristics

Variable Mean SD Min Max

(1) (2) (3)

PPML LSDV LSDV

5.1 | The supplier target hypothesis

TABLE 4 Supplier target hypothesis: different sample periods

(1) (2) (3)

PPML PPML PPML

5.2 | The user target hypothesis

(1) (2) (3)

PPML LSDV LSDV

TABLE 6 User target hypothesis: different sample periods

(1) (2) (3)

PPML PPML PPML

6 | T H E ROL E OF COU N T RY AND SECTOR

6.1 | Country-­level characteristics

(1) (2) (3) (4) (5) (6)

Rule of law Regulatory quality Property rights

Low High Low High Low High

PPML PPML PPML

(1) (2) (3) (4) (5) (6)

Rule of law Regulatory quality Property rights

Low High Low High Low High

PPML PPML PPML

(1) (2) (3) (4)

Supplier's hypothesis User's hypothesis

PPML PPML PPML PPML

TABLE 10 Supplier target and user target hypothesis: industry-­wise analysis

Acquirer Target Acquirer Target

(1) (2) (3) (4)

6.2 | Sectors’ participation in GVCs

6.3 | Industry-­level characteristics

TABLE 11 Supplier target and user target hypothesis: upstreamness

(1) (2) (3) (4)

6.4 | The role of upstreamness

Supplier's hypothesis User's hypothesis

TABLE A1 Correspondence between TIVA STAN classification and SIC 3 digits

TIVA STAN classification SIC

TABLE A2 List of countries

Origin countries Destination countries

INCLUSION OF GRAVIT Y VARIABLES

(1) (2) (3)

Do cross-border mergers and acquisitions reflect

F I G U R E 1 Backward and forward GVC participation, 1995–2010 (percentages)

F I G U R E 3 Country-pair M&As and GVC components

F I G U R E 4 Sector-pair M&As and GVC components

6.1 | Country-level characteristics

TABLE 10 Supplier target and user target hypothesis: industry-wise analysis

6.3 | Industry-level characteristics