Paper short abstract:

The paper presents a quantitiative study design to measure product, process, and functional upgrading, as well as internal and external governance. This is achieved using firm-level export data over a 10-year period for the Kenyan leather and garment value chains.

Paper long abstract:

Drawing on disaggregated export transaction data over a 10-years period (2006-2015), this paper analyses the relationship between market trajectories, governance, and upgrading among Kenyan suppliers at all levels of the leather value chain (possibly, this may be extended to the garment and apparel value chain too).

This study represents a first attempt at quantifying governance relationships by assessing the dyadic stability of buyer-supplier exchanges. Moreover, using unit values as an indicator of product upgrading and HS coding as an indicator of functional upgrading, the correlation between market trajectories and upgrading is further assessed. Methodologically, this is achieved by means of a linear probability model combining between- and within-firm analysis through pooled OLS and Fixed Effect (FE) models. The impact of industrial policy on upgrading is further established through the adoption of a FE difference-in-differences model. Generalised ordered logit is used to establish the robustness of the outcome.

Final results show how participation in South-North, South-South, and regional value chains display very different dynamics in terms of governance and upgrading. While suppliers involved in South-North value chains experience higher degrees of product upgrading, they fail to functionally upgrade. Conversely, regional and local value chains witness most of the value addition. Moreover, larger suppliers establish more stable and integrated governance ties with increasing access to mid-levels of processing. Yet, upgrading into manufacturing is characterised by smaller firms with less direct ties, usually embedded in South-South and regional value chains.