Trading for Development in the Age of Global Value Chains

The global economy has undergone a profound transformation in recent decades, with the rise of global value chains (GVCs). GVCs are production networks that are spread across multiple countries, with each country specializing in a particular stage of the production process. This has led to a more interconnected and interdependent global economy, with far-reaching implications for developing countries.

Developing countries face both challenges and opportunities in the age of GVCs. On the one hand, GVCs can provide developing countries with access to new markets, technologies, and investment. On the other hand, GVCs can also lead to increased competition, job losses, and environmental degradation.

The role of trade policy in promoting development in the GVC context is complex and multifaceted. Trade policy can be used to promote GVC participation, to mitigate the negative effects of GVCs, and to maximize the benefits of GVCs for developing countries.

World Development Report 2024: Trading for Development in the Age of Global Value Chains

by World Bank

4.6 out of 5

Language	:	English
File size	:	17739 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Print length	:	224 pages

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GVCs are complex networks of firms and suppliers that are involved in the production of a good or service. GVCs are typically characterized by the following features:

• Fragmentation of production: GVCs involve the fragmentation of production into multiple stages, with each stage taking place in a different country. This allows firms to take advantage of comparative advantages in different countries, such as lower labor costs or access to natural resources.
• Specialization: Firms in GVCs specialize in a particular stage of production, such as design, manufacturing, or assembly. This specialization allows firms to achieve economies of scale and improve efficiency.
• Geographical dispersal: GVCs are geographically dispersed, with production taking place in multiple countries. This dispersal allows firms to access different markets and to take advantage of different regulatory environments.

GVCs present both challenges and opportunities for developing countries.

Challenges:

• Competition: Developing countries face increased competition from other developing countries and from developed countries in GVCs. This competition can lead to lower prices and reduced profit margins for developing country firms.
• Job losses: GVCs can lead to job losses in developing countries, as production is shifted to countries with lower labor costs.
• Environmental degradation: GVCs can contribute to environmental degradation, as production processes are often located in countries with weak environmental regulations.
• Exploitation: Developing country firms may be exploited by lead firms in GVCs, which can lead to unfair wages and working conditions.

Opportunities:

• Access to new markets: GVCs can provide developing countries with access to new markets, which can help to boost exports and economic growth.
• Technology transfer: GVCs can facilitate the transfer of technology from developed countries to developing countries. This can help to improve productivity and competitiveness.
• Investment: GVCs can attract investment to developing countries, which can help to create jobs and boost economic growth.
• Upgrading: Developing countries can move up the value chain by specializing in higher-value-added activities, such as design and innovation. This can lead to increased profits and economic growth.

Trade policy can play a key role in promoting development in the GVC context. Trade policy can be used to:

• Promote GVC participation: Trade policy can be used to reduce tariffs and other barriers to trade, which can make it easier for developing countries to participate in GVCs.
• Mitigate the negative effects of GVCs: Trade policy can be used to address the negative effects of GVCs, such as competition, job losses, and environmental degradation. For example, trade policy can be used to provide support to workers who are displaced by GVCs or to protect the environment from the negative effects of GVCs.
• Maximize the benefits of GVCs: Trade policy can be used to maximize the benefits of GVCs for developing countries. For example, trade policy can be used to promote upgrading and to ensure that developing country firms are treated fairly by lead firms in GVCs.

There are a number of case studies of successful GVC participation by developing countries. For example, China has successfully integrated into GVCs in a number of sectors, including electronics, textiles, and machinery. This has helped to boost China's exports

World Development Report 2024: Trading for Development in the Age of Global Value Chains

by World Bank

4.6 out of 5

Language	:	English
File size	:	17739 KB
Text-to-Speech	:	Enabled
Screen Reader	:	Supported
Enhanced typesetting	:	Enabled
Print length	:	224 pages

FREE