Global Value Chains

The international fragmentation of production networks – often referred to as global value chains (GVCs) – is increasingly changing the global trade and investment landscape, prompting us to re-examine economic development strategies and to reassess the adequacy of existing international governance frameworks designed to manage trade integration and economic interdependencies. The emergence of GVCs is essentially a product of globalisation and particularly of the lowering of transport costs and the information technology revolution, whose advances have given firms the ability unbundle their production processes in different locations in an effort to reduce production costs. Today, firms can divide their operations across the world, from the design of the product and manufacturing of components to assembly and marketing, creating international production chains dominated by business-to-business trade in tasks and intermediate goods. This process is largely driven by investment decisions of multinational corporations (MNCs) and typically involves a wide range of firms and service providers at different stages of production with each link in the chain relying on upstream producers delivering their output on time and meeting the required quality and safety standards.

As with any fundamental change, GVCs offer both challenges and opportunities. While this product fragmentation could prove particularly beneficial for developing countries by creating opportunities to engage in international trade transactions that were previously unavailable, it also raises challenges in terms of capturing the value and moving up the value chains as they integrate into those highly complex production networks. Although the opportunities to participate should be “global” in nature, in reality GVCs have not been spread evenly across the world. Instead, GVCs today are regional, moving towards the development of a few mega-regionals that could leave the neediest developing countries out of the trading picture.

As a contribution to this emerging debate, the E15 Initiative partnered with the Inter-American Development Bank (IDB) to convene a group of leading thinkers from around the world, representing a wide range of perspectives ranging from former policy makers, academics, trade practitioners, private sector or representatives of IGOs. Led by ICTSD’s Senior Fellow Sherry Stephenson, the group examined  the policy implications of the GVCs’ impacts on the structure of trade; identified policies that enhance opportunities or restrict possibilities in the operation of GVCs; investigated how individual countries at different levels of development can position themselves to integrate into GVCs and maximise welfare gains; suggested how governments can ensure effective international institutional and legal frameworks to manage growing economic interdependencies resulting from GVCs; and outlined the  implications for future international trade negotiations at the regional and multilateral level.