Global Value Chains and Economic Development

Abstract

About 80 percent of global trade is nowadays between firms. Those firms engage in so-called global value chains (GVCs), jointly finalising goods while being located in multiple countries. This thesis studies the implications of this new form of production for economic development. Economic development typically requires the generation of jobs in manufacturing, and long-run productivity and value-added growth. Studying a large set of developing countries since the 1970s, this thesis provides evidence that participation in GVCs is positively correlated to GDP per capita and to productivity growth in formal manufacturing. These associations might be driven by efficiency gains of specialisation, the diffusion of technology within GVCs, and learning through relationships between participating firms. Yet, there is no evidence that GVC participation fosters faster employment growth in formal manufacturing on average. Results further show that there are large differences in job growth across countries due to their performance in GVCs, that is, their ability to capture rising income shares within GVCs. GVCs appear not to be a driver of jobs and structural change per se, but a small number of top performers engaging in GVCs appears to benefit greatly. It remains an important challenge to retrieve key policy lessons that allow countries to fully benefit from GVCs. Trade facilitation is often seen as one such policy, fostering exports of developing countries. Yet, this thesis shows that gains from such trade policies are not uniform, but depend on countries’ specialisation patterns and importantly on their forward and backward linkages within GVCs.