Companies participating in global value chains are more than twice as productive, contribute to greater poverty reduction and tend to employ more women, according to a study by the World Bank. report of the World Bank. They still have challenges in the environmental impact of their logistics.
El World Development Report 2020: Trade for development in the era of global value chains He concludes that since then, global value chains have driven an economic transformation that has allowed poorer countries to move rapidly along the path of development. Through such chains, developing countries can specialize and grow richer without having to create entire industries from scratch.
In an era of slowing trade and growth, developing countries can achieve better outcomes for their citizens by implementing reforms that increase their participation in global value chains. These reforms can help them expand their economies by shifting from commodity exports to basic manufacturing, and ensure that economic benefits are more widely distributed across society.
Global value chains account for almost 50% of international trade. But their growth has stagnated since the 2008 crisis, according to the report. Trade frictions have created uncertainties over market access, prompting companies to consider postponing investment plans. The benefits of participating in global value chains have also not been distributed equitably between or within countries. Environmental costs are rising, mainly due to rising carbon dioxide emissions from transporting intermediate goods over longer distances.
Global value chains can remain an engine of sustainable growth if developing countries adopt deeper regulatory reforms, and advanced economies adopt open and predictable policies. It shows that countries can take the lead in achieving better outcomes by choosing from a range of options tailored to their specific stage of development. These options include stronger policies to reduce carbon emissions (such as economic valuation of environmental degradation) and helping displaced workers find new jobs.
Speeding up customs procedures and reducing delays at borders can yield significant benefits for countries transitioning from commodity exports to basic manufacturing. Similarly, investments that improve connectivity by modernizing communications, roads, railways and ports can yield large benefits.
According to The report, global value chains:
They promote productivity and growth: A 1% increase in GVC participation is estimated to lead to per capita income growth of over 1%, roughly twice as much as in traditional trade. In Ethiopia, firms participating in GVCs are more than twice as productive as similar firms participating in traditional trade.
Reduce poverty: Since the growth gains from GVCs are greater than those from trade in final products, their impact on poverty reduction is also greater. Regions in Mexico and Vietnam that participated more intensively in GVCs experienced greater poverty reductions.
They generate better jobs: Firms in global value chains help people engage in more productive manufacturing and service activities and tend to employ more women, thereby supporting structural transformation in developing countries.
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