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Global Value Chain Development Report 2019

Technological Innovation, Supply Chain Trade, and Workers in a Globalized World

image of Global Value Chain Development Report 2019

This report takes stock of the evolution of global value chains (GVCs) in light of technological developments, such as robotics, big data and the Internet of Things. It discusses how these technologies are reshaping GVCs and examines the effect of these changes on labor markets in developed and developing economies and on supply chain management. The report discusses how technological developments are creating new opportunities for the participation of small and medium-sized enterprises in global value chains and reviews issues related to GVC measurement. The report is a follow-up to the first Global Value Chain Development Report, which revealed the changing nature of international trade when analyzed in terms of value chains and value-added trade.

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Should high domestic value added in exports be an objective of policy?

Global value chains make it easier for developing countries to move away from export reliance on unprocessed primary products to become exporters of manufactures and services. Global value chains (GVCs) allow countries to specialize in a particular activity and join a global production network. As a developing country moves from export of primary products to export of manufactures and services via GVCs, the ratio of domestic value added to gross export value tends to fall. Many developing country policy-makers worry about this trend and aspire to increase their value added contribution to exports. There are a number of reasons why this objective is not good policy. It may seem like simple math that a higher domestic value added share means more total value added exported and hence more GDP. But that simple idea ignores the reality that imported goods and services are a key support to a country’s competitiveness. The chapter documents this via the history of the successful East Asian industrializers as well as more recent evidence from Association of Southeast Asian Nations (ASEAN) economies. If a country artificially replaces key inputs with inferior domestic versions, the end result is likely to be fewer gross exports and less, not more, total value added exports.

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