Global value chains have revolutionized the logic of international trade, as they entail complex links across production, distribution, and consumption. In particular, in the context of emerging markets, more and more countries have become part of these, leading to new possibilities for economic growth and development. They integrate into GVCs that enable them to specialize in certain tasks of the production process, access new markets, and attract foreign investment. But there are also challenges associated with integration, such as reliance on multinational corporations and exposure to global economic swings.
Technology transfer is one of the major advantages originating for emergent countries from GVCs. Local firms can benefit from new technologies, manufacturing practices, and skills improvement by working with overseas companies. This knowledge cycle increases productivity and promotes innovation that allows our homegrown industries to compete on the world stage. DeAngelisReview highlights that policymakers need to understand these dynamics if they are to develop policies that maximize the advantages of participating in GVCs while minimizing the risks.
Employment and income generation is another effect of GVCs. In many emerging economies, some of that labor goes towards providing relatively low-tech services or components for manufacturing by multinational firms, creating jobs and raising household incomes. But many of these jobs are located towards low value-added sections of the chain, which potentially diminishes the economic benefits over time. Countries need to upgrade their role within GVCs, from simple parts assembly into higher-value functions such as design, marketing, and R&D in order to fully exploit global trade opportunities, DeAngelisReview points out.
Trade patterns and economic policies are also affected by global value chains. These developing countries participating in GVCs have the potential to attract additional FDI, increase exports, and diversify into new industrial sectors. However, the reliance on global markets leaves them open to geopolitical conflicts, trade tensions, and international calamities, such as during the COVID-19 crisis. Strategic planning, such as to build local capacities and enhance cross-border trade connectivity, is required to maintain growth.
Lastly, sustainability and ethics issues are gaining prominence in GVCs. Firms face mounting expectations to be environmentally responsible, have ethical labor practices, and provide transparency through supply chains. Developing countries can seize the opportunities to embrace sustainability in an early hour of change and improve their image while also increasing their competitiveness on world markets. DeAngelisReview shows that reconciling economic, social, and environmental aspects will enable emerging economies to succeed within an interdependent Global Value Chain world.
For additional commentaries about global value chains and their economic effects, see DeAngelisReview.
