Global value chains Flashcards
What opportunity do Global Value Chains (GVCs) give?
Gives an opportunity for countries to integrate into the global economy at lower costs by producing only certain components or tasks rather than complete final products
Why countries manage to join GVCs?
Only countries that are sufficiently close to being able to produce at world standard quality and efficiency levels are able to participate
How is the GVC participation index computed?
As the sum of the share of foreign value added (backward participation) in gross exports and the share of domestic value added of indirect exports (forward participation) in gross exports
For a country that is upstream what is it likely?
Has a high value of forward participation relative to backward
For a country that is downstream what is it likely?
It is likely that it imports a lot of intermediate goods form abroad and therefore it has high backward participation
Which countries in the GVC index get a positive value?
Countries with high forward relative to backward participation record a positive value
What are the two ways that services trade in GVCs?
Services are traded directly across borders, but to a lesser extent than goods
Services are embodied in goods and are traded indirectly through them.
Example of services that are embodied in goods and are traded indirectly through them.
Domestic engineering services, logistics services or financial services that are part of the production of a car will subsequently be exported indirectly
Services offshoring
Denotes the relocation of service activities form a domestic to a foreign economy
Services offshoring therefore covers both the activities of an independent supplier and the in-house activities conducted by a foreign affiliate
What does the measure of regional intensity (RI) of exports indicate?
Provides an indication of the extent to which services offer opportunities for remote developing countries to participate in GVCs by showing whether services are traded more globally than goods
What does a RI indicator larger than 1 indicate?
That a particular industry is traded more regionally relative to overall trade
What are limitations of GVCs
It is not clear whether its results generalise from the sector or firm level to favourable development outcomes at the country level
It has not been shown whether GVC participation causes growth
It is uncertain whether development successes through GVC integration, such as for instance the experiences in East Asia, can be replicated in a similar fashion elsewhere
What is the smile curve?
Lower levels of value added in the middle stages of the vale chain
What are the 3 reasons for the smile curve?
Tasks are offshored to developing countries precisely because production costs in these countries are low relative to coordination costs
Relative market power. Easier to do, so intense competition from many countries
Internationally mobile technology mobile technology. The transfer of advanced technology to the offshore locations is now more worthwhile than in the 1970s
What does upgrading in GVCs mean?
Refers to broadening value added performed in a GVC in which integration aha already been achieved
Process and product upgrading
IN some cases, process and product upgrading are achieved with the help of lead firms while in others suppliers themselves are expected to drive the initiatives
Functional upgrading
Competition from new entrants. Particularly from other developing countries with lower production costs. Therefore this is providing a complete product, managing part of the value chain, designing products or organising distribution
Advantage of functional upgrading
Reduce the amount of competition a firm faces, increase its pricing and market power, and underpin more enduring competitive advantage than process upgrading
Functional upgrading into activities that are core competencies of lead firms, such as design or branding, can be facilitated in three ways
Serving smaller domestic customers in addition to multinational lead firms typically leads to suppliers attaining functional upgrading
Being active simultaneously in various chains can foster functional upgrading
Being active in chains at the domestic, regional and global levels is favourable for functional upgrading
What is intersectional upgrading?
The ability to establish vertical backward linkages or transfer capabilities to new products and activities
What are risks to GVC participation?
Increased vulnerability to gobble business cycles
Increased vulnerability to supply disruptions
Relocation and investment risks
Risks relating to labour and the environment
Risks relating to income inequality
What is narrow learning?
Can occur when the sills involved in the activities performed in GVCs can neither be usefully transferred to other activities nor used to upgrade within the same value chain
What are the 3 main barriers for deolpign countries seeking to participate in value chain?
Inadequate structure
Limited access to trade financing
Standards compliance
