Economic research and trade policy analysis
Productivity Growth, Innovation, and Upgrading along Global Value Chains
Greater exposure to international trade improves productivity by increasing competition expanding product markets and improving access to production inputs. Productivity increases at the industry level because competitive pressure leads to a reallocation of resources to more productive firms while the least productive ones are forced to exit the market (Melitz 2003; Melitz and Ottaviano 2008; Eslava et al. 2013). The productivity of firms can also increase because heightened competition from imported products pushes them to invest in new processes technologies and skills to survive (Shu and Steinwender 2019). The possibility to expand into larger export markets also incentivizes firms to improve the production efficiency and the quality of their products (Bustos 2011). And access to a larger range of intermediate production inputs potentially lowers the input costs of firms improves product quality and expands product variety (Fieler Eslava and Xu 2018; Goldberg et al. 2010; Amiti and Konings 2007). Indeed a positive and significant causal effect of trade—measured as the sum of exports plus imports to a country’s gross domestic product—on aggregate productivity has long been established in the economic literature (Alcalá and Ciccone 2004; Alesina Spolaore and Wacziarg 2000; Frankel and Romer 1999).
Executive Summary
The theme of the Global Value Chain Development Report 2021 is Beyond Production. Most research on global value chains (GVCs) focuses on manufacturing production; in other words the breaking up of production processes into many discrete steps with a resulting explosion of trade in parts and components. But there are aspects of GVCs that go beyond manufacturing processes; in fact value added and employment generation in GVCs are depending less and less on manufacturing production. This year’s report features research on these aspects. For example by highlighting the role of multinational corporations (MNCs) and closely related to that the role of intellectual property (IP) in setting up GVCs. Value chains are an efficient way for firms to exploit their brands patents and other IP. In the extreme this leads to “factoryless” production in which firms that design and market manufactured products own none of the production process. An important part of modern GVCs consists of innovator countries exporting the services of their IP in return for manufactured goods.
The role of international cooperation in building economic resilience
As responses to the 2008-09 global financial crisis and the COVID-19 pandemic have shown lack of cooperation among governments can create significant tensions and lead to suboptimal outcomes. In contrast governments benefit from acting cooperatively to enhance their resilience whether they are preparing for future disruptions coping with shocks or stimulating the recovery. International cooperation in the trade area can play an important role in building economic resilience to shocks by leveraging synergies and supporting a more open diversified inclusive and predictable trade environment.
Global Value Chain Development Report
A radical shift is underway in global value chains as they increasingly move beyond traditional manufacturing processes to services and other intangible assets. Digitization is a leading factor in this transformation which is being accelerated by the coronavirus disease (COVID-19) pandemic. The Global Value Chain Development Report 2021 the third of a biennial series explores this shift Beyond Production. This report shows how the rise of services value chains offers a new path to development and how protectionism and geopolitical tensions environmental risks and pandemics are undermining the stability of global value chains and forcing their reorganization geographically.
The Role of Global Services Value Chains for Services-Led Development
The emergence of global value chains (GVCs) has lowered the threshold for countries to participate in globalization. They offer a new path for development without having to establish complete production capabilities from upstream inputs to downstream final goods and after-sales services. Developing countries can plug into GVCs and specialize in specific economic activities in accordance with their comparative advantage to benefit from gains from trade and specialization.
Digital Platforms and Global Value Chains
The two largest changes that have affected international trade since the 1990s are the creation of the new digital economy and the development of global value chains (GVCs). Both are inherently connected to new information and communication technology (ICT) and both have seemingly increased trade inclusivity benefitting the trade participation of micro small and medium-sized enterprises (MSMEs) and developing countries. The interaction between the digital economy and GVCs is not well explored however. Although the growth of both may have been in parallel is there evidence that the digital platforms at the core of the digital economy affect GVC participation? This chapter examines the role of digital platforms especially e-commerce marketplaces in the modern economy; the ways these platforms can increase economic inclusivity; and the development of GVCs and their effect on trade participation. The chapter also reviews the evidence on the link between digital platforms and GVC participation.
Introduction
The COVID-19 pandemic highlights a paradox: globalization has created a world that is both more vulnerable and more resilient to crises. On the one hand economic integration makes us more dependent on far-flung trade networks and more exposed to cascading risks and shocks. On the other hand economic integration also allows us to diversify suppliers pool resources and share information and expertise. The same features that make the global economy susceptible to crises – openness interdependence networked technologies – also make it adaptable innovative and better able to withstand crises when they hit. Strengthening trade by making it more diversified inclusive and cooperative is also central to making the global economy more resilient to current and future crises from pandemics to climate change.
World Trade Report 2021
The COVID-19 pandemic and the prospect of increasingly frequent and more intense natural and man-made disasters raise important questions about the resilience of the global economy to such shocks. The World Trade Report 2021 explores the basic binary assumption driving much of the current debate about economic resilience namely the inherent trade-off between global trade interdependence and national economic security and suggests that this can be a false dilemma. Due to its interconnected nature international trade can increase an economy’s exposure to risks and contribute to the transmission of shockwaves. At the same time it can bolster economic resilience particularly when backed by domestic policies and effective global cooperation. As a driver of economic growth trade can generate the resources and knowledge needed to prepare for crises. It can also help countries recover by facilitating the provision of goods and services needed to cope with a crisis. Policies aimed at increasing economic resilience by re-shoring production and unwinding trade integration ultimately reduce economic resilience. Conversely trade diversification can contribute to economic resilience by allowing countries to be less dependent on a limited number of importers exporters and sectors. The World Trade Report 2021 shows that a more open inclusive and predictable trade environment is needed to promote diversification and contribute to economic resilience. The WTO already plays a key role in making economies more resilient by promoting lower trade barriers and greater transparency in trade policies. Further international cooperation at the WTO can strengthen the mutual supportiveness of trade openness and economic resilience so that the world is better prepared to deal with future crises.
Competition policy and intellectual property in today's global economy
The fast-evolving relationship between the promotion of welfare-enhancing competition and the balanced protection of intellectual property (IP) rights has attracted the attention of policymakers analysts and scholars. This interest is inevitable in an environment that lays ever greater emphasis on the management of knowledge and innovation and on mechanisms to ensure that the public derives the expected social and economic benefits from this innovation and the spread of knowledge. This book looks at the positive linkage between IP and competition in jurisdictions around the world surveying developments and policy issues from an international and comparative perspective. It includes analysis of key doctrinal and policy issues by leading academics and practitioners from around the globe and a cutting-edge survey of related developments across both developed and developing economies. It also situates current policy developments at the national level in the context of multilateral developments at WIPO WTO and elsewhere.
Covid-19 vaccine production and tariffs on vaccine inputs
Over 180 representatives from 111 members and observers participated on 12 October in a virtual information session on the WTO Secretariat’s work to support equitable access to COVID-19 vaccines.
Indicative list of trade-related bottlenecks and trade-facilitating measures on critical products to combat covid-19
This information note seeks to facilitate access to information on possible trade-related bottlenecks and trade-facilitating measures on critical products to combat COVID-19 including inputs used in vaccine manufacturing vaccine distribution and approval therapeutics and pharmaceuticals diagnostics and medical devices. It is not meant to be an exhaustive list of all specific trade measures nor does it make any judgement on the effect or significance of the reported bottlenecks nor on the desirability of implementing any of the suggestions on trade-facilitating measures.
The global race to vaccinate
The WTO Secretariat has published two information notes on issues relating to the manufacturing of COVID-19 vaccines.
Trade digitalization and financing: New hope for MSMES?
The International Finance Corporation (IFC) the SME Finance Forum and the World Bank Group estimate the entire MSME finance gap to be close to US$ 5 trillion hindering the ability of MSMEs to grow. This gap however is not due to a lack of available funds. A 2019 report by the International Trade Centre (ITC) indicated that “in 2018 global funds held US$ 1 trillion of cash-in-hand equity capital that was seeking investment opportunities”. Of particular concern is the trade finance gap which disproportionately affects MSMEs. Despite the low-risk nature of short-term trade finance the trade finance gap alone is estimated at upwards of US$ 1.5 trillion. The rejection rate of MSME proposals for trade finance is 45 per cent. According to the Asian Development Bank (ADB) “among MSMEs initially rejected that sought alternative financing 47 per cent were unable to find anything appropriate”; this does not include those firms that do not even apply for financing in the first place.
Foreword
Micro small and medium-sized enterprises (MSMEs) are the backbone of the economy representing 95 per cent of all companies worldwide and accounting for 60 per cent of employment. They are fundamental to the day-to-day provision of goods and services around the world. Yet many struggle to grow and trade. Among the many challenges that MSMEs face a lack of access to finance including trade finance is frequently identified as a critical barrier to growth. The MSME financing gap is a reality that cannot be ignored and that should be tackled with determination if we wish to ensure that small players are given a chance to thrive.
Conclusion
The key issue for MSME financing is risk assessment and more specifically how to better assess the risk potential of companies that lack a long credit history. Technological tools and data-driven solutions enable firms to approach this process from a new angle. They make it possible to harness a bigger pool of data to provide greater visibility into firms’ operations and creditworthiness. Rather than a backward-looking approach to risk assessment as in the past data can now allow financiers to make risk assessments a real-time process.
Appendix
To investigate the state of the industry the authors conducted a quantitative survey to practitioners from banks fintech companies multilateral development banks industry associations trade governance bodies consultancies and trade policy experts. In total 105 responses were received.
The role of technology
Many of the challenges that face MSMEs in their search for financing are broad in scope and cannot easily be addressed by any single solution. As one of the fintech respondents [*22 Fintech] observes “It is easy to say that technology is the answer here and while innovation will help banks distribute trade finance assets to smaller investors and better understand the risks associated with MSMEs there is also a greater change needed”. At this early stage of the adoption of such technological innovation there is very little evidence to suggest that it is being utilized by corporates and MSMEs just yet. That said it is difficult to dispute that technological innovation and the various emerging technologies in the industry are a critical piece in the puzzle of overcoming these challenges.
Introduction
Imagine how different the world might look today if in 1976 Apple Computers had not obtained the US$ 15000 in financing they needed to buy the parts to fulfil their first order. How many entrepreneurial visions with the potential to change the world have fizzled out of existence due to a lack of funds?
Accelerating Trade Digitalization to Support MSME Financing
For many micro small and medium-sized enterprises (MSMEs) around the world today access to financing can mean the difference between prosperity and bankruptcy. Working to identify understand and ultimately overcome the challenges that MSMEs face in their quest for acquiring financing will help to ensure that the next great technological idea does not cease to exist before it has a chance to change the world. This publication seeks to identify some of the most pressing of these challenges understand them and explore the potential application of digital technologies to mitigating their impact. To that end the authors conducted interviews and surveys with experts in the field of MSME financing including in some cases trade financing to shed light on these issues and explore the ways in which technology can be used. This publication begins by examining some of the challenges that have been identified as impacting MSME financing as well as the role that the COVID-19 pandemic has had in moulding the landscape. Next it moves on to examining key digital technologies their potential benefit to the industry – in particular to MSME financing – a selection of case studies and of companies utilizing these technologies the adoption challenges they face and recommendations for overcoming these challenges. The technologies in question include cloud computing optical character recognition the Internet of Things big data analytics artificial intelligence quantum computing distributed ledger technology and application programming interfaces.