Positive institutional distance and developing country firms in GVCs during the COVID-19 period

Purpose Given the importance of directions in institutional distance studies, noticeably absent from the global value chains (GVCs) literature is an examination of positive institutional distance and its “greasing-the-wheels” effect, which could complement our understanding of the dark side of institutional distance in GVCs. This study attempts to fill this gap by exploring the effect of positive institutional distance on GVC participation in developing countries during the COVID-19 crisis in detail. Design/methodology/approach Our sample includes GVCs-related trade data from 32 developing nations in 2020 collected from the World Integrated Trade Solution. We analyzed the non-linear interactions based on the procedure outlined by Jaccard (2003) to test both the main effect and the moderating effect. Findings For a sample of GVCs-related trade data from 32 developing nations in 2020, we found strong evidence that positive institutional distance positively affects GVC participation in developing countries. In addition, the stringency of lockdown policies in the destination country moderates this relationship in a U-shaped manner and a negative linear manner in the source countries. Originality/value First, this study explores the “bright” side of institutional distance during the COVID-19 crisis, emphasizing the importance of the direction of institutional distance in maintaining GVC participation. Additionally, the study highlights the positive aspect of the pandemic by promoting developing country firms' participation in institutionally remote countries. It departs from existing literature by focusing on GVC participation in the context of uncertainty and crises. Lastly, the study empirically tests a U-shaped moderator, offering new insights for research models with non-linear independent variables.