Book: Making Global Value Chains Work for Development

WASHINGTON, June 13, 2016—Globalization has changed the way firms participate in production networks. Previously, companies primarily made products in one country and countries had to make complete goods from start to finish in order to compete internationally.

But now, low- and middle-income countries can integrate with global value chains (GVCs) by specializing in certain tasks along the chain of international production. Firms make components in the most cost-effective location and value is added at every step along the way, resulting in a finished product that is assembled with inputs from multiple countries.

For developing countries, this means they can become competitive sooner and more easily access benefits from industry such as faster growth and more and better jobs for workers. But the potential benefits of GVCs are not automatic. Countries must have not only effective trade and investment policies in place but also the appropriate domestic business environment, as well as a strategic vision for how they will engage with a GVC.

GVCs, their benefits for developing countries and the tools needed to make them most effective are the topic of a new book from the World Bank Group’s Trade & Competitiveness Global Practice: Making Value Chains Work for Development.

“Southeast Asia is an example of a region that has integrated with several GVCs. Following the investments of many major multinational corporations attracted by the low costs of production, it has become known as a trusted hub for producing not only electronics parts and automobile components, but increasingly knowledge-intensive goods and services,” notes Daria Taglioni, World Bank Group Lead Trade Economist and book co-author. 

“At the opposite end of the spectrum, according to Taglioni, “African countries have not captured the same level of investment. Even though several regional economic agreements have made trade between African nations easier, most countries do not yet have the infrastructure or policies in place to actively and efficiently participate in GVCs.” 

Conditions for successful GVCs

A number of enabling conditions should be in place in order for a country to successfully participate in a GVC. In particular, a country must be connected to international markets, have quality infrastructure to transport components and goods within and across borders, maintain a competitive business climate, develop an educated and skilled workforce, and build the capacity for firms to innovate and adopt new technology.

“GVCs offer a role to play for economies at different levels of development at any point in time, notes Deborah Winkler, Senior World Bank Group Consultant and co-author of Making Global Value Chains Work for Development. “But policymakers need to prioritize their objectives, identify their most important challenges, and make informed choices in order to move along the value chain and use GVCs to achieve sustainable development.”

These steps are critical to ensuring that the result of integrating with a GVC aligns with a country’s development objectives, Winkler said.

There are several ways policymakers can approach GVCs, depending on their specific goals, the book highlights:

• Facilitate and attract investment through trade facilitation, strong logistics, and pro-business regulations;
• Create a world-class workforce by getting workers access to the skills and training they need;
• Build strong links between GVCs and the local economy so that local firms can benefit from transfers of technology and know-how. This also means firms need a baseline level of technology and understanding in place so they can be prepared to absorb innovation.
• Implement climate-smart policies and infrastructure that will help countries compete on a global scale in a sustainable way for the long-term.  

Making Global Value Chains Work for Development tackles the big questions raised by the realities of 21^st century globalization and offers policymakers a strategic framework, analytical tools, and policy options as guidance for functioning in an increasingly interconnected world.

“Observers of structural transformations suggest that the influence of policymakers is limited, unless strategies fit the prevailing conditions of their contemporary industrial era. The key megatrend of the 21^st century is the interplay between technological (ICT) innovation and globalization. Successful developers are those that will be able to interpret this megatrend. This book makes it easier for policymakers, development practitioners, and researchers to understand this megatrend and, accordingly, to identify their objectives when it comes to participating in GVCs,” says Taglioni. “With clearer strategic goals in mind, countries can get the right economic policies in place to achieve them.”