For most of its history, the semiconductor industry has successfully operated globally and was featured heavily in global value chains. Today, it is the industry norm that no one country or company can fully or independently produce or assemble semiconductor components. However, over the past two years, the global pandemic has significantly stress tested this globally oriented and interdependent value chain. The unanticipated and unprecedented spike in demand for chip-enabled products has created semiconductor supply shortages that have disrupted the operation of many downstream sectors dependent on chips. This, in combination with geopolitical tensions, is putting the sector at the center of industrial policies in advanced economies. The newly passed semiconductor bill in the US and the European Chips Act are aiming to reorient this value chain towards re-shoring and reshuffling the existing division of labor in the sector.
Given these unprecedented short-term market disruptions and the costs associated with the move to complete autarky, it remains to be seen whether the chip industry will remain heavily globally interdependent in the long-term. In addition, the semiconductor market is estimated to grow significantly over the next 10 years, as chips become more important to the global and more digitized economy. With this backdrop and the enduring importance of semiconductors in production chains, is there an opening for developing economies to participate in the global semiconductor value chain? What innovation policies are most conducive for this purpose, such as workforce development, intellectual property regimes, trade facilitation and FDI attraction? On the consumption side, how could developing countries encourage chip-enabled technologies, such as 5G that help connect and enable economies through improved digital infrastructure? Do these disruptive trends offer opportunities for catching up economies to upgrade their technological capabilities or widen the existing technological divide? What do companies like Qualcomm and SK hynix look for in a country or region when making decisions on production investments?
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