Trade policy shocks in the UK textile and apparel value chain: Firm perceptions of Brexit uncertainty

Agriculture, food and global value chains: issues, methods and challenges

Problem definition: The uncertainty around trade and foreign economic policy contributes to supply chain risk. Academic/practical relevance: Whether such policy uncertainty will bring some production back to the United States or only redistribute the global supply chains among foreign sources is theoretically ambiguous and warrants an empirical analysis. In this paper, we study the relationship between trade and foreign economic policy uncertainty and the supply chain networks of American firms. Methodology: We use firm-level global supply chain data, transaction-level shipping container data, and policy uncertainty indexes constructed from leading media outlets to study how policy uncertainty correlates with changes in supply chain networks. Results: When U.S. trade policy uncertainty rises, firms with majority domestic sales decrease their supplier base abroad, whereas firms with majority foreign sales increase the number of foreign suppliers. Firms also substitute among foreign countries in response to their respective economic policy uncertainty—shifting suppliers from countries with higher uncertainty to ones with lower uncertainty. Firms requiring more specific inputs, producing more differentiated products, having higher market shares, and more central to the production network are more sensitive to policy uncertainty. Managerial implications: Supply chain restructuring following higher policy uncertainty puts the market value at risk. Managers should consider customers’ locations when making global supply chain restructuring decisions. Funding: B. Charoenwong acknowledges funding from the National University of Singapore [Start-Up Grant R-315-000-119-133] and the Singapore Ministry of Education [AcRF (Academic Research Fund) Tier 1 Grant R-315-000-122-115]. J. Wu acknowledges funding from the Hong Kong RGC (Research Grants Council) [Grant 14504621]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.1136 .

Lesotho is a landlocked, least-developed economy and a member of the Southern African Customs Union (SACU), the oldest customs union (CU) in the global economy. Forty per cent of the population lives under the poverty line. The economic base is narrow, reliant on the textiles and apparel industry (for 59 per cent of total exports), subsistence agriculture, remittances, regional customs revenue and a degree of manufacturing. The apparel industry and agriculture constitute the backbone of the economy and the main employer. Faced with Lesotho’s geo-economic circumstances and development challenges, the trade and economic response of government has been strategic. Domestic economic policy and structural reforms, accompanied by a policy of economic diversification, trade openness and integration, have been pursued. A trade development plan was carefully designed for active integration into regional and global value chains. These measures have yielded significant welfare gains and economic livelihood dividends. Trade and economic policies are reviewing the next generation of reforms, inter alia in the sectors of mining, electricity and tourism, which face challenges, but have potential for growth. This chapter identifies and discusses the specific steps in the trade policy plan for Lesotho’s successful integration into the textile and apparel value chain, specifically, and more broadly, into a global value chain.

Lesotho is a landlocked, least-developed economy and a member of the Southern African Customs Union (SACU), the oldest customs union (CU) in the global economy. Forty per cent of the population lives under the poverty line. The economic base is narrow, reliant on the textiles and apparel industry (for 59 per cent of total exports), subsistence agriculture, remittances, regional customs revenue and a degree of manufacturing. The apparel industry and agriculture constitute the backbone of the economy and the main employer. Faced with Lesotho’s geo-economic circumstances and development challenges, the trade and economic response of government has been strategic. Domestic economic policy and structural reforms, accompanied by a policy of economic diversification, trade openness and integration, have been pursued. A trade development plan was carefully designed for active integration into regional and global value chains. These measures have yielded significant welfare gains and economic livelihood dividends. Trade and economic policies are reviewing the next generation of reforms, inter alia in the sectors of mining, electricity and tourism, which face challenges, but have potential for growth. This chapter identifies and discusses the specific steps in the trade policy plan for Lesotho’s successful integration into the textile and apparel value chain, specifically, and more broadly, into a global value chain.

We study the impact of trade and other economic policy uncertainty on supply chain networks of American firms. The uncertainty around the trade and other economic policy contributes to supply chain risk. Whether such policy uncertainty will bring production back to the U.S. or only a redistribution of the global supply chains is theoretically ambiguous and warrants an empirical analysis. Using firm-level global supply chain data, transaction-level shipping container data, and policy uncertainty indexes, we investigate the question using reduced-form empirical specification with high dimensional fixed effects. Rather than inducing production to come “home”, on average higher U.S. trade policy uncertainty predicts an increase in foreign supplier relationships, driven by firms with majority foreign sales. In contrast, those with mostly domestic sales mildly decrease foreign supplier relationships. American firms also appear to substitute among foreign countries in response to foreign-country-specific economic policy uncertainty – shifting suppliers from countries with higher uncertainty to ones with lower uncertainty. Firms with more bargaining power respond more to all measures of economic policy uncertainty. Corporate managers should take their customers’ locations into account when making sourcing decisions; in particular, reducing operational risk due to changing economic policies may involve additional offshoring rather than re-shoring.

Since the inception of the twenty-first century, there has been a profound upsurge in economic policy uncertainty (EPU) with several economic and environmental impacts. Although there exists a growing body of literature that probes the economic effects of EPU, the EPU-energy nexus yet remains understudied. To fill this gap, the current study probes the impact of disaggregated EPU (i.e., monetary, fiscal, and trade policy uncertainty) on energy consumption (EC) in the USA covering the period 1990M1-2020M12. In particular, we use sectoral EC (i.e., energy consumed by the residential sector, the industrial sector, the transport sector, the electric power sector, and the commercial sector) in consort with total EC. The findings from the bootstrap ARDL approach document that monetary policy uncertainty (MP) plunges EC, whereas trade (TP) and fiscal policy uncertainty (FP) escalate EC in the long run. On the contrary, there is a heterogeneous impact of FP and MP across sectors in the short run, while TP does not affect EC. Keeping in view the findings, we propose policy recommendations to achieve numerous Sustainable Development Goals.

This study examines for the first time whether trade policy uncertainty emanating from the United States significantly predicts Nigeria’s participation in global value chains. It further examines the kind of global value chain participation in Nigeria (forward or backward linkages) that is most predictable by the United States trade policy uncertainty. To achieve the study objective, frequency domain causality, wavelet coherence analysis, and time-varying causality are employed in analyzing annual data sets over the period 1990–2019. The summary of the study findings is as follows; first, trade policy uncertainty emanating from the United States significantly predicts Nigeria’s overall integration into global value chains. Second, there is a positive association between Nigeria’s integration into global value chains and the United States trade policy uncertainty. Third, Nigeria’s overall integration into global value chains is highly correlated with the United States trade policy uncertainty in periods around the global economic crisis of 2007/08 and Nigeria’s recession of the late 2010s. Fourth, most of the predictability noticed in the relations between trade policy uncertainty generated by the United States and the overall global value chain participation is caused by the relations between the United States trade policy uncertainty and Nigeria’s forward linkage into global value chain participation.

I provide novel evidence for the impact of trade policy uncertainty on exporters. In a dynamic, heterogeneous firms model, trade policy uncertainty will delay the entry of exporters into new markets and make them less responsive to applied tariff reductions. Policy instruments that reduce or eliminate uncertainty, such as binding trade policy commitments at the WTO, increase entry. The predictions are tested on disaggregated, product-level Australian imports with model-consistent measures of uncertainty. The estimates show that growth of exporter–product varieties would have been 7% lower between 1993 and 2001 without the binding commitments implemented after the WTO was formed in 1996. If Australia reduced all its tariffs and bindings to zero, more than half of predicted product growth is accounted by removing uncertainty. These results illuminate and quantify an important new channel for trade creation.

This paper introduces the concept of value chain directionality to investigate how orientation to different value chains has implications for productive learning and industrial outcomes. We develop and test this concept building on a purposefully designed firm-level survey focused on the textile and apparel value chain in East Africa. Tanzanian and Kenyan textiles and apparel firms lie on a spectrum in terms of their engagement with national, regional and global value chains (NVCs, RVCs and GVCs), with outcomes varying with value chain directionality. GVC firms focus on a narrow range of lower-value functions (mostly garment assembly) while RVC and NVC firms perform a wider range of functions including vertical integration to textile manufacture and higher-value activities such as design and branding, but cases of functional upgrading were rare in all groups. GVC firms were closer to the technological frontier, but RVC and NVC firms were similarly engaged in process upgrading. GVC firms tended to have more complex products than RVC and NVC firms, and only GVC firms had recently engaged in product upgrading. Crucially, results in the area of end market upgrading confirmed the hypothesis that RVCs have the potential to serve as ‘learning grounds’, or ‘stepping stones’ to more demanding but potentially lucrative global markets. In other outcomes, GVCs appear to offer greater prospects for rapid employment generation but RVCs and NVCs tend to favour backward integration by incorporating more locally sourced inputs.

COVID‐19, trade and trade policy

Uruguay has much to gain from further integration with the global marketplace. Increased trade allows economies of scale and increases exposure to technological and knowledge spillovers, resulting in greater productivity. Participating in global and regional value chains is an important launch-pad for international integration. Uruguay requires a multipronged strategy that targets increased sophistication of Uruguay’s productive structure and diversification into specialized, high-value, modern services exports unconstrained by lack of economies of scale or distance. This report analyzes the dairy and Information & Communications Technology (ICT) and ICT Enabled Services (ICTES) value chains in Uruguay to identify opportunities for industry-specificupgrading and integration with global value chains (GVCs). By taking the dairy and ICT/ICTES value chains as concrete cases, the analysis piloted here illustrates how a traditional industry, locked in low value added exports, such as dairy, and a new export service industry, such as ICT/ICTES, can tackle the remoteness and ‘smallness’ challenges of Uruguay, and pursue economic upgrading andbetter international integration. The analytical approach targets opportunities to both enter new international production networks and participate in higher-value-added business segments. These objectives align with the Government of Uruguay’s priority to determine how the country can integrate better with global markets through GVCs. GVCs have four key features that set them apart from traditional production and trade: (1) customization of production—with intensive contracting between parties, often subject to distinct legal systems, (2) sequential production decisions going from the buyer to the suppliers, (3) high contracting costs, and (4) global matching not onlyof goods and services, but also of production teams. These distinct features of GVCs have implications for the overall business environment conducive to fertile grounds for GVCs to prosper, as well as for the types of trade facilitation efforts, infrastructure, skills, and trade and investment policies that are best suited for this reality.

MotivationThe COVID‐19 pandemic has massively disrupted international trade and global value chains. Impacts, however, differ across regions and industries. This article contributes to a better understanding of the scale of disruptions to industries and value chains integral to the economies of and livelihoods in developing countries, and what role policy can play to mitigate harm.PurposeThis article aims to: (1) analyse and characterize disruptions to the global apparel value chain caused by the COVID‐19 pandemic, focusing on how developing countries have been impacted, and; (2) identify key policies to support a resilient, inclusive and sustainable recovery.Approach and methodsWe review COVID‐19 related reports published by international and non‐governmental organizations, international trade and production statistics, industry surveys and media reports. We frame our analysis predominantly within the Global Value Chains literature.FindingsThe global apparel value chain has been severely disrupted by the pandemic, owing to direct effects of sickness on workers in factories, reduced output of materials—cloth, thread, etc.—used to fabricate clothing, and to reduced demand for apparel in high‐income countries. Developing countries are suffering disproportionately in terms of profits, wages, job security and job safety. Women workers in the apparel chain have been hit especially hard, not only because most workers in the chain are women, but also because they have experienced increasing unpaid care work and higher risk of gender‐based violence.Policy implicationsFive key areas of policy to support a resilient, inclusive and sustainable recovery stand out: (1) delivering emergency responses to ensure firm survival and the protection of workers’ livelihoods; (2) reformulating FDI attraction strategies and promoting market diversification; (3) supporting technology adoption and skills development; (4) deploying labour standards to improve workers’ conditions and strengthening social protection systems; and (5) adopting gender‐sensitive responses.

PurposeThe purpose of this paper is to provide an early assessment of India’s South-South cooperation for trade and technology (SSTT) with East Africa, focusing on Ethiopia, Rwanda, Kenya, Uganda and Tanzania. It aims to analyse the role of SSTT in providing support to targeted sectors.Design/methodology/approachThe paper examines SSTT, focusing on India and East Africa over a specific period (2000–2016) of its emergence, and extends the public sponsorship literature in international business (IB) to better understand the relationship between SSTT and value addition – applying to a particular case study of SSTT interventions in spices.FindingsThe paper highlights SSTT as a pathway to support value addition in global value chains (GVCs). Trade between India and East African countries has grown, with three developments over the period of analysis in particular: shifting trade patterns, growing share of intermediate goods trade and differences in GVC insertion. However, East African exports are largely of lower value. Capacity building to support processing capability and thriving markets can encourage greater value addition. Preliminary findings suggest early gains at the margins, as SSTT interventions have been focusing on capacity boosting with buffering and bridging mechanisms for increased volume of trade. Moving up the value chain however requires that specific value-enhancing activities continue to be targeted, building on regional capacities. Our high-level case study for spices suggests that activities are starting to have a positive effect; however, more focus is needed to specifically target value creation before export and in particular higher levels of processing.Practical implicationsWhile findings are preliminary, policy implications emerge to guide SSTT interventions. There is capacity for building higher value-added supply chains as is evident among East African countries that trade with each other – future SSTT programmes could tap into this and help build capacity in these higher-value value chains. Future SSTT programmes can take a comprehensive approach by aiming at interventions at key points of the value chain, and especially at points that facilitate higher value addition than initial processing. An example is that Ethiopia and Rwanda are likely to benefit from an expanded spice industry, but the next phase should be towards building processing for value-addition components of the value chain, such as through trade policies, incentivising exporters to add value to items before export. From a development perspective, more analysis needs to be done on the value chain itself – for instance, trade facilitation measures to help processers engage in value chains and to access investments for increasing value add activities. (iv), Future research should examine more closely the development impacts of SSTT, namely, the connection between increased trade, local job creation and sustained innovation, as it is these tangible benefits that will help countries in the Global South realise the benefits of increased trade.Originality/valueThe paper underlines how the SSTT approach can contribute to the critical IB and GVCs literature using a theoretical grounded approach from public sponsorship theory, and with a unique lens of development cooperation between countries in the global south and its emerging impact on development outcomes in these countries.

Purpose Recent empirical studies by Antonakakis, Chatziantoniou and Filis (2013), Brogaard and Detzel (2015) and Christou et al. (2017) present evidence, which supports the notion that a rise in economic policy uncertainty (EPU) will lead to a decline in stock prices. The purpose of this paper is to examine US categorical policy uncertainty on stock returns while controlling for implied volatility and downside risk. In addition to the domestic impacts of policy uncertainty, this paper also presents evidence that changes in US policy uncertainty promptly propagates to the global stock markets. Design/methodology/approach This study uses a GED-GARCH (1, 1) model to estimate changes of uncertainties in US monetary, fiscal and trade policies on stock returns for the sample period of January 1990–December 2018. Robustness test is conducted by using different set of data and modeling techniques. Findings This paper contributes to the literature in several aspects. First, testing of US aggregate data while controlling for downside risk and implied volatility, consistently, shows that responses of stock prices to US policy uncertainty changes, not only display a negative effect in the current period but also have at least a one-month time-lag. The evidence supports the uncertainty premium hypothesis. Second, extending the test to global data reveals that US policy uncertainty changes have a negative impact on markets in Europe, China and Japan. Third, testing the data in sectoral stock markets mainly displays statistically significant results with a negative sign. Fourth, the evidence consistently shows that changes in policy uncertainty present an inverse relation to the stock returns, regardless of whether uncertainty is moving upward or downward. Research limitations/implications The current research is limited to the markets in the USA, eurozone, China and Japan. This study can be extended to additional countries, such as emerging markets. Practical implications This paper provides a model that uses categorical policy uncertainty approach to explain stock price changes. The parametric estimates provide insightful information in advising investors for making portfolio decision. Social implications The estimated coefficients of changes in monetary policy uncertainty, fiscal policy uncertainty and trade policy uncertainty are informative in assisting policymakers to formulate effective financial policies. Originality/value This study extends the existing risk premium model in several directions. First, it separates the financial risk factors from the EPU innovations; second, instead of using EPU, this study investigates the effects from monetary policy, fiscal policy and trade policy uncertainties; third, in additional to an examination of the effects of US categorical policy uncertainties on its own markets, this study also investigates the spillover effects to global major markets; fourth, besides the aggregate stock markets, this study estimates the effects of US policy uncertainty innovations on the sectoral stock returns.

No AccessFeb 2020Micro Foundations (2): Upgrading Agricultural Value ChainsAuthors/Editors: José R. López-CálixJosé R. López-CálixSearch for more papers by this authorhttps://doi.org/10.1596/978-1-4648-1490-7_ch5AboutView ChaptersFull TextPDF (0.9 MB) ToolsAdd to favoritesDownload CitationsTrack Citations ShareFacebookTwitterLinked In Abstract: Determines possible upgrading trajectories for Mali, Chad, Niger, and to a lesser extent, Guinea so as to increase their participation in global (and regional) value chains and improve their growth and economic diversification prospects. Priority industries were identified as bovine (Niger); cashew (Mali); gum arabic (Chad); onion (Niger); and sesame seed (Chad and Mali). Global demand drives exports from Chad, Mali, and Niger through a network of traders that use mostly informal channels to supply intermediaries of international firms and regional buyers. Four global value chain (GVC) groups consist of several GVC subtypes and are characterized as agricultural sellers; commodity sellers; other sellers; and buyers; with an understanding of the structural transformation of different economies, the taxonomy allows for identifying past and future upgrading trajectories, informing country and sector diagnostics, and identifying suitable policies for different country contexts. Understanding GVC trends in gum arabic, oilseed, nuts, livestock, and horticulture will help target lead firms, governance structure, and market dynamics. REFERENCESAhmed,, G 2018. “Upgrading Agricultural Value Chains in Mali, Niger, and Chad.” Unpublished background paper, World Bank, Washington, DC. Google ScholarAhmed,, G and B Fandohan. 2017. “GVC in Niger: Bovine and Onions.” Unpublished background paper, Niger: Leveraging Export Diversification to Foster Growth, World Bank, Washington, DC. Google ScholarAhmed,, G and B Fandohan. 2018b. “Chad’s Value Chains in Sesame Seeds and Gum Arabic.” Unpublished background paper, Chad: Leveraging Export Diversification to Foster Growth, World Bank, Washington, DC. Google ScholarAhmed,, G and B Fandohan. 2018c. “GVC in Mali: Sesame Seeds and Cashew.” Unpublished background paper, Mali: Leveraging Export Diversification to Foster Growth, World Bank, Washington, DC. Google ScholarAhmed,, G, S Nahapetyan, D Hamrick, and J Morgan. 2017. Russian Wheat Value Chain and Global Food Security. Durham: Duke Center on Globalization, Governance & Competitiveness at the Social Science Research Institute. https://gvcc.duke.edu/wp-content/uploads/2017/05/cggc-russia-wheat-value-chain.pdf. Google ScholarAntràs,, P and D Chor. 2018. “On the Measurement of Upstreamness and Downstreamness in Global Value Chains.” NBER Working Paper 24185, National Bureau of Economic Research, Cambridge, MA. https://www.nber.org/papers/w24185.pdf. Google ScholarBarrientos,, S, G Gereffi, and A Rossi. 2012. “Economic and Social Upgrading in Global Production Networks: A New Paradigm for a Changing World.” International Labour Review 150 (3–4): 319–40. Google ScholarDe Marchi,, V, E Di Maria, and S Micelli. 2013. “Environmental Strategies, Upgrading, and Competitive Advantage in Global Value Chains.” Business Strategy and the Environment 22 (1): 62–72. Google ScholarFAO (Food and Agriculture Organization). 2018. Food and Agriculture Data. Retrieved from: http://www.fao.org/faostat/en/#data. Google ScholarGereffi,, G 2014. “Global Value Chains in a Post-Washington Consensus World.” Review of International Political Economy 21 (1): 9–37. Google ScholarHumphrey,, J and H Schmitz. 2002. “How Does Insertion in Global Value Chains Affect Upgrading in Industrial Clusters?” Regional Studies 36 (9): 1017–27. Google ScholarNeilson,, J, B Pritchard, and H Wai-Chung Yeung. 2014. “Global Value Chains and Global Production Networks in the Changing International Political Economy: An Introduction.” Review of International Political Economy 21: 1–8. Google ScholarPfeffer,, J and G Salancik. 1978. The External Control of Organizations: A Resource Dependency Perspective. New York: Harper & Row. Google ScholarTaglioni,, D 2018. “The Position of Mali, Niger, Chad, and Guinea in the Typology of GVCs.” Unpublished background paper, World Bank, Washington, DC. Google ScholarTaglioni,, D and D Winkler. 2016. Making Global Value Chains Work for Development. Trade and Development Series. Washington, DC: World Bank. LinkGoogle ScholarWorld Bank. 2017. “Niger: Leveraging Export Diversification to Foster Growth.” Report No. 120306-NE, World Bank, Washington, DC. Google ScholarWry,, T, J A Cobb, and H E Aldrich. 2013. “More Than a Metaphor: Assessing the Historical Legacy of Resource Dependence and its Contemporary Promise as a Theory of Environmental Complexity.” Academy of Management Annals 7 (1): 439–86. Google Scholar Previous chapterNext chapter FiguresreferencesRecommendeddetails View Published: February 2020ISBN: 978-1-4648-1490-7 Copyright & Permissions Related CountriesChadGuineaMaliNigerRelated TopicsAgricultureInternational Economics & TradePrivate Sector Development KeywordsLANDLOCKED COUNTRIESECONOMIC DIVERSIFICATIONTRADE DIVERSIFICATIONEXPORTERSTRADE COMPETITIONCONNECTIVITY AND ACCESS TO MARKETSTRADE POLICYAGRICULTURAL COMMODITY TRADINGVALUE CHAINSCROP DIVERSIFICATIONAGRIBUSINESSLIVESTOCKHORTICULTURAL CROPSREGIONAL COOPERATION AND TRADE PDF DownloadLoading ...