Developing countries that boost their participation in global value chains and make the transition from commodity exports to basic manufacturing can achieve better growth outcomes for the benefit of all citizens, a new World Bank Group says.
According to The World Development Report 2020: Trading for Development in the Age of Global Value Chains, global value chains have enabled developing countries to experience growth when it comes to boosting overall wealth, while the poorest countries are able to quickly climb the development ladder.
“Global value chains have played an important part in growth by enabling firms in developing countries to make significant gains in productivity and by helping them transition from commodity exports to basic manufacturing. In the age of global value chains, all countries have much to benefit by speeding up reforms that increase commerce and boost growth,” said World Bank Group Chief Economist Pinelopi Koujianou Goldberg, who added, “Countries need trade to develop. An open, predictable environment benefits everyone. To ensure sustained social support for trade, policymakers need to ensure that the benefits of global value chains are widely shared among a broad range of groups—especially the poor and women.”
Global value chains currently correspond to nearly 50% of trade worldwide. However, trade frictions, weakness in distributing the gains from participation in global value chains equally across and within countries, as well as the increase of environmental costs are all significant challenges for the global value chains. The report suggests that in order to overcome these challenges and achieve a better outcome, countries need to act appropriately according to their specific stage of development.
Some of the steps that countries can take in order to attract global value chain investments include the reduction of carbon emissions, the assistance to displaced workers to find new jobs, speeding up the customs clearance process, and reducing border delays.
The report noted that global value chains can promote productivity and growth, slash poverty, and deliver better jobs. In particular, a 1% increase in participation can boost the income levels of each individual by more than 1% – about twice as much as standard trade.
Growth from global value chains can also reduce poverty as firms that are part of the process can offer job opportunities in more productive manufacturing and services sectors.