Amid recent global shocks to international trade, global value chains (GVC) continued to expand and demonstrate resilience and sustainability in 2022, benefiting more developing countries in the process, according to a new World Trade Organization (WTO) report.
The report titled “GVC Development Report 2023: Resilient and Sustainable GVCs in Turbulent Times” notes that international production networks remain a central part of globalization despite mounting pressures. Foreign inputs comprised a record-high of 28% of global merchandise exports last year. Moreover, GVC participation rates of almost all economies were higher in 2022 compared to their pre-pandemic levels in 2018.
This bodes well for spreading the benefits of trade to more firms, workers and developing economies, according to the report jointly published with the Asian Development Bank, Institute of Developing Economies-Japan External Trade Organization, and Research Institute for Global Value Chains.
However, the study also warns that ongoing global shocks, including the Russian war in Ukraine, lingering COVID-19 pandemic effects, and US-China trade tensions threaten to derail this trajectory.
At the same time, the GVCs’ intricate networks of international flows of goods, services, capital, and technology currently face exceptional challenges arising from the impacts of climate change.
Moreover, the paper finds that the export value and share of potential bottleneck products—products that are exported by very few economies—has more than doubled since 2000, from 9% to 19% of total trade, contributing to the vulnerability of GVCs. Also, there has been considerable concentration in sources of foreign inputs. In addition, US-China trade tensions have led to an increase in the number of stages in GVCs from 2018 to 2020.
These troubling developments underline the need to assess the potential vulnerable points of GVCs to shocks, stresses the study issued on November 16.
The report emphasizes that GVCs can drive inclusive development in developing economies by improving productivity and alleviating constraints and can result in higher wages and better working conditions.
“GVC integration leads, on average, to better outcomes for firms and workers in developing economies. The evidence consistently shows that local suppliers to MNCs and firms exporting intermediates outperform other firms in developing economies,” it says.
In particular, GVCs provide micro, small and medium enterprises (MSMEs) with chances for quality upgrading, knowledge spillovers, technology transfers, and innovation through their affiliations with lead firms. In this regard, firms in developing economies with higher GVC integration tend to have substantially better management practices. Furthermore, becoming part of GVCs can assist in alleviating credit constraints, a substantial challenge encountered by MSMEs.
The benefits spill over to workers as well. Being employed at MNCs or their suppliers generally results in higher wages and better working conditions, including a higher likelihood of formal employment. Women often benefit from these developments in particular.
These findings have important policy implications, declares the report. “Since GVC integration tends to benefit firms and workers, the focus should be on facilitating entry into GVCs and spillovers to the domestic economy to ensure that GVCs are truly inclusive.”
Source: PHILEXPORT News and Features
December 15, 2023
