Week 2

Question 1

Global value chain

Answer 1

When different stages of the production process take place in different countries.

Question 2

Policies affecting GVCs (4)

Answer 2

Improving public infrastructure
Improving worker skills
Creating a sound business environment
Reduction/elimination of tariff and non-tariff bariers to trade of parts and components

Question 3

Upgrading in GVCs can be achieved in four ways

Answer 3

1. Product upgrading
2. Process upgrading
3. Functional upgrading (moving to production stages with higher value added/less competition)
4. Inter-sectoral upgrading (backward linkages, transferring capabilities to new activities)

Question 4

Risks of GVC participation (5)

Answer 4

• Vulnerability to fluctuations in global demand and supply
• Mobility. Small changes can trigger a relocation of core activities
• Risk of ‘race to the bottom’ regarding labour or environmental standards
• Offshoring tasks changes the relative demand for different types of workers
• Economic dependence on one task/multinational

Question 5

Benefits of GVC participation (4)

Answer 5

+ Can result in knowledge and tech spillovers
+Access to larger markets creates incentives to improve existing capabilities. Productivity gains etc.
+ Positive reputation effects
+ Triggers structural transformation (which generates growth and productivity gains)

Question 6

When will a country export intermediates (Baldwin)

Import?

Answer 6

Export:
MCXtT < Pw or MC < Pw/XtT

Import:
MC > PwXtT

No export/import :
Pw/XtT < MC < PwXtT

Question 7

Baldwin Model: A country will be a competitive supplier in a GVC if it can export a good to a foreign country at a cost lower than the cost of making the good in the foreign country (Pw)

Give formula and sources of costs

Answer 7

Marginal cost of producing (MC)
transport cost (T)
Tariff (t)
Coordination cost (X)

Cost of producing at home and exporting = MCXtT
Cost of imporitng = PwXtT

Question 8

Capabilities that lead to the most gains in GVCs are

Answer 8

more rare
more complex
harder to codify

Question 9

What is the biggest obstacle for developing countries for participating in GVCs

Answer 9

High transportation costs.

It’s easier to participate via specializing in services which can be supplied via ICT

Question 10

What allows countries to specialize in certain tasks, rather than building the whole supply chain on their own?

Answer 10

Falling communication and transportation costs

Question 11

Backward participation and forward participation

Answer 11

Backward: buying inputs from other firms participating in the GVC
Forward: selling inputs to other firms participating int the GVC