# **1. Introduction**

Already 20 years ago, Feenstra (1998) wrote a survey article in the _Journal of Economic Perspectives_ on the disintegration of production and the wide-ranging impacts this had on trade flows. Since then, the rise of global value chains (GVCs) has received a lot of research attention, leading to new measurement tools and insights in the development of global production networks.

An issue of particular interest is how this development impacts the way poorer countries are integrated in the global trading network. A relatively upbeat perspective is provided in a series of monographs published by the World Bank, i.e. Hernández, Martínez and Mulder (2014), Taglioni and Winkler (2016), and World Bank (2017).

Others, however, provide a more negative perspective. For example, Whittaker et al. (2010) emphasize that countries that come late to the development challenge now face a process of compresses development. In order to engage with the world economy via the existing global value chains, they need to address a host of challenges simultaneously. The requirement to adjust a wide range of policies at once represents a very challenging task for states; only a few countries are able to accomplish this.

Relatedly, Rodrik (2018) discusses how the importance of GVCs impacts the benefits that developing countries reap from new technologies. While new technologies have direct benefits, they tend to be biased towards skills and other capabilities, and they often reduce the comparative advantage of developing countries in traditionally labor-intensive manufacturing activities. Moreover, GVCs limit the extent to which firms in developing countries can substitute unskilled labor for other production inputs, further limiting their ability to use their labor cost advantage to offset their technological disadvantage.

In this paper we take a resolutely empirical perspective and focus on the performance of individual firms. While it is undeniable that firms in some countries have been able to benefit greatly from GVCs, the rapid development of the Chinese economy is a case in point, not all countries have had the same experience. We study the economy of Rwanda and focus especially on the manufacturing sector, while also presenting some evidence for other tradable goods sectors, namely agriculture and mining.

The unique perspective of our analysis is that we have access to information for the universe of formally registered firms in Rwanda. We have merged information from three administrative datasets at the firm-level: from payroll, business income taxation, and custom’s. The exhaustive nature of our data allows us to reach conclusions about the breath of engagement in GVCs for the entire set of active firms.

One important finding that surfaces is the remarkable concentration of exports in only a few firms. Freund and Pierola (2015) already highlighted this pattern for 32 developing countries, but our more detailed evidence for Rwanda highlights this even further. Given that we not only observe international trade engagement at the firm-level, but also employment and sales statistics, we are able to show in what way trading firms are different from firms only active domestically. One surprising finding is that sales per employee, a coarse proxy for labor productivity, is not a predictor of export market participation. That is to say, firms which pay payroll taxes, and thus firms for which we observe formal employment, are 2