Does economic policy uncertainty impact global value chain participation of Indian firms? The role of financial constraints

Ketan Reddy; Subash Sasidharan; Shandre Mugan Thangavelu

doi:10.1016/j.econmod.2025.107243

Does economic policy uncertainty impact global value chain participation of Indian firms? The role of financial constraints

Ketan Reddy
, Subash Sasidharan
, Shandre Mugan Thangavelu

Indian Institute of Management Raipur
Indian Institute of Technology Madras
Sunway University

Research output: Contribution to journal › Article › peer-review

4 Citations (Scopus)

Abstract

This study investigates the impact of economic policy uncertainty (EPU) on global value chain (GVC) participation of Indian manufacturing firms. Using firm-level panel data from India spanning 2004–2021, we estimate a probit model and address endogeneity concerns using an instrumental variable approach. Our analysis reveals that higher economic policy uncertainty leads to a decline in firms' GVC participation. The adverse effects of EPU translate via the financial constraints channel with high-leverage and low-liquidity firms experiencing a greater impact of EPU on their GVC integration. Moreover, we find that firms with access to trade credit can mitigate the adverse impact of EPU. In addition, using survival analysis, we also demonstrate that higher EPU is associated with greater exit rates among GVC firms.

Original language	English
Article number	107243
Journal	Economic Modelling
Volume	152
DOIs	https://doi.org/10.1016/j.econmod.2025.107243
Publication status	Published - Nov 2025
Externally published	Yes

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

SDG 9 Industry, Innovation, and Infrastructure
SDG 17 Partnerships for the Goals

Keywords

Economic policy uncertainty
GVC participation
Manufacturing firms

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10.1016/j.econmod.2025.107243

Cite this

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title = "Does economic policy uncertainty impact global value chain participation of Indian firms? The role of financial constraints",

abstract = "This study investigates the impact of economic policy uncertainty (EPU) on global value chain (GVC) participation of Indian manufacturing firms. Using firm-level panel data from India spanning 2004{\textendash}2021, we estimate a probit model and address endogeneity concerns using an instrumental variable approach. Our analysis reveals that higher economic policy uncertainty leads to a decline in firms' GVC participation. The adverse effects of EPU translate via the financial constraints channel with high-leverage and low-liquidity firms experiencing a greater impact of EPU on their GVC integration. Moreover, we find that firms with access to trade credit can mitigate the adverse impact of EPU. In addition, using survival analysis, we also demonstrate that higher EPU is associated with greater exit rates among GVC firms.",

keywords = "Economic policy uncertainty, GVC participation, Manufacturing firms",

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doi = "10.1016/j.econmod.2025.107243",

language = "English",

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T1 - Does economic policy uncertainty impact global value chain participation of Indian firms? The role of financial constraints

AU - Reddy, Ketan

AU - Sasidharan, Subash

AU - Thangavelu, Shandre Mugan

PY - 2025/11

Y1 - 2025/11

N2 - This study investigates the impact of economic policy uncertainty (EPU) on global value chain (GVC) participation of Indian manufacturing firms. Using firm-level panel data from India spanning 2004–2021, we estimate a probit model and address endogeneity concerns using an instrumental variable approach. Our analysis reveals that higher economic policy uncertainty leads to a decline in firms' GVC participation. The adverse effects of EPU translate via the financial constraints channel with high-leverage and low-liquidity firms experiencing a greater impact of EPU on their GVC integration. Moreover, we find that firms with access to trade credit can mitigate the adverse impact of EPU. In addition, using survival analysis, we also demonstrate that higher EPU is associated with greater exit rates among GVC firms.

AB - This study investigates the impact of economic policy uncertainty (EPU) on global value chain (GVC) participation of Indian manufacturing firms. Using firm-level panel data from India spanning 2004–2021, we estimate a probit model and address endogeneity concerns using an instrumental variable approach. Our analysis reveals that higher economic policy uncertainty leads to a decline in firms' GVC participation. The adverse effects of EPU translate via the financial constraints channel with high-leverage and low-liquidity firms experiencing a greater impact of EPU on their GVC integration. Moreover, we find that firms with access to trade credit can mitigate the adverse impact of EPU. In addition, using survival analysis, we also demonstrate that higher EPU is associated with greater exit rates among GVC firms.

KW - Economic policy uncertainty

KW - GVC participation

KW - Manufacturing firms

UR - https://www.scopus.com/pages/publications/105011936316

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DO - 10.1016/j.econmod.2025.107243

M3 - Article

AN - SCOPUS:105011936316

SN - 0264-9993

VL - 152

JO - Economic Modelling

JF - Economic Modelling

M1 - 107243

ER -

Does economic policy uncertainty impact global value chain participation of Indian firms? The role of financial constraints

Abstract

UN SDGs

Keywords

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