Domestic Value Chains Research Articles

Domestic value chains as stepping stones to global value chain integration

AbstractIdentifying the determinants of global value chain (GVC) integration is essential to understand the past expansion and current slowdown in GVCs. In this paper, we study the role of domestic value chains (DVCs) for GVC integration. In the presence of industry‐specific fixed costs of fragmenting production and of switching across input suppliers, DVCs can either be stepping stones or stumbling blocks for subsequent GVC entry. Focusing on backward linkages, that is, the sourcing of intermediates, we provide robust empirical evidence in favour of the stepping‐stone hypothesis. In our benchmark specification, a one standard deviation increase in DVC integration raises subsequent GVC integration by about 0.4%. To identify the mechanisms at work, we exploit two dimensions of industry‐level heterogeneity: product differentiation (a proxy of fragmentation costs) and relationship specificity (a proxy of the costs of switching between suppliers). We find that DVC integration is less conducive to GVC integration in industries that are characterised by relatively high switching costs and relatively low fragmentation costs.

The Employment Effects of Global Value Chains

ABSTRACTDue to advances of information, communication, and technology and reductions in trade barriers, countries are increasingly deeply engaged in global value chains (GVCs). In the article, we theoretically and empirically show that a country’s position in GVCs has significantly positive effects on its employment level and structure. Countries located in a higher position in GVCs induce a larger demand for high-skilled labors and a more perfect employment structure. Empirical results further reveal that the position in GVCs will help improve employment structure in both developed countries and developing countries, and the employment effects of GVCs are statistically larger for capital-intensive industries than for labor-intensive industries. Moreover, by distinguishing international and domestic division of labor, we find that the employment effects of domestic value chains are larger than foreign value chains.

Value Added Decomposition of Chinese Provincial Exports and Its Assessment of True Comparative Advantage: A Case Study of Manufacturing in Jiangsu Province

The Sino-US trade conflict, the collapse of economic globalization and the reconstruction of global value chains have enhanced the necessity and urgency of building an open and connected, self-controllable, domestic value chain. Jiangsu is a major province and a large open province. The goal, path and measures for Jiangsu to build an independent and controllable advanced manufacturing system will have typical reference value. Based on the KWW trade value added decomposition framework, the World Input-Output Table (WIOT) and the inter-regional input-output tables of 30 provinces in China, Jiangsu’s return domestic value added, foreign value added, province value added and other provinces’ value added in Jiangsu’s manufacturing exports are estimated. Meanwhile, the regional linkages and changes of Jiangsu’s manufacturing exports with the rest of the provinces are also analyzed. The results show that the value added of imports from Jiangsu exports is higher than that of other provinces, which indicates that the “foreign circulation” of Jiangsu’s economy is stronger than “domestic circulation” though the situation is always changing in recent years. The Yangtze River Delta region is the core space for Jiangsu to build manufacturing industry chain. The Yangtze River Economic Belt and the Huaihai Economic Zone, which is the part of new Silk Road, are two important extended spaces for Jiangsu to build up NVC. Finally, On the basis of the decomposition of export value added, the industries with real comparative advantages in 16 major manufacturing industries in Jiangsu Province are evaluated. Both the advantages and disadvantages of Jiangsu’s value chain upgrading at the industrial level are unveiled.

A welfare economics analysis of China’s industrial layout restructuring

Purpose At present, China’s industrial spatial layout faces the predicament of over-agglomeration of Eastern China industries and the near disintegration of industrial structure in the central and western regions. The paper aims to discuss this issue. Design/methodology/approach Based on the perspective of differentiated inter-regional labor mobility, this paper constructed a model framework of quadratic sub-utility quasi-linear preference utility function, and conducted model deduction and numerical simulation on causal factors of this spatial imbalance along the two dimensions of individual and regional welfare. Findings The study finds that in the long run, industrial spatial layout imposes a certain threshold limit on the portfolio proportion of differentiated labor. The dilemma of China’s industrial spatial layout is attributable to the deviation of the market’s optimal agglomeration from the social optimal agglomeration, and to the disfunction of Eastern China’s role as an intermediary between the global and the domestic value chain. Originality/value To resolve this predicament of industrial layout, the unitary welfare compensation based on fiscal transfer payment has to be switched to a more comprehensive approach giving consideration to industrial rebalancing.

Making Contract Farming Arrangements Work in Africa’s Bioeconomy: Evidence from Cassava Outgrower Schemes in Ghana

This paper uniquely focuses on rapidly-developing domestic value chains in Africa’s emerging bioeconomy. It uses a comparative case study approach of a public and private cassava outgrower scheme in Ghana to investigate which contract farming arrangements are sustainable for both farmers and agribusiness firms. A complementary combination of qualitative and quantitative methods is employed to assess the sustainability of these institutional arrangements. The results indicate that ad hoc or opportunistic investments that only address smallholders’ marketing challenges are not sufficient to ensure mutually beneficial and sustainable schemes. The results suggest that firms’ capacity and commitment to design contracts with embedded support services for outgrowers is essential to smallholder participation and the long-term viability of these arrangements. Public-private partnerships in outgrower schemes can present a viable option that harnesses the strengths of both sectors and overcomes their institutional weaknesses.

Governance, value chain positioning and firms' heterogeneous performance: The case of Tuscany

The recent trade literature has shown how incomplete contracts can shape firms' boundary and the decision of whether to outsource or integrate vertically. Related evidence and conceptualizations from the business literature show that buyer-supplier relations in global value chains can take several governance structures, depending on the degree of vertical coordination and power relations between firms. Building upon these two non-competing strands of the literature, we construct a taxonomy of firms that considers their positioning (upstream or downstream), their belonging to domestic or global value chains and the type of relations they entertain with other firms. We apply our taxonomy to the 2011 census of firms operating in Tuscany. We first describe regional characteristics and then study how positioning and governance affect firms' decisions and performance. Our results show that firms in hierarchical value chains are more productive than those in market chains; that firms involved in global value chains outperform the one outside or in domestic value chains, and, finally, that firms which are both suppliers and buyers in a value chain have the highest productivity premium.

Opportunities and constraints in building improved domestic mango value chains in Pakistan

Emerging high-end fruit markets and retailers have been setting out the new trends of fruit marketing in Pakistan. Market research studies conducted at high-end fruit outlets in the three big cities of Pakistan, Karachi, Lahore and Faisalabad, in the Australia-Pakistan Agriculture Sector Linkage Program (ASLP) project indicated that consumers are willing to pay 20-25% more for good quality mango – defined as “medium size (300-400 g), clean, fully ripe fruit without softness and good in color without blemishes”. However, the traditional marketing systems that exist in Pakistan are dominated by commission agents/contractors that inhibit price transparency, and this impact on the producers' abilities to respond to consumer needs. Three marketing interventions were carried out to demonstrate the benefits of ASLP best practices, documented at the farm level, along the identified chain. In the first trial, the ASLP best practice mangoes were presented to the market through the traditional wholesale market system, which failed due to reluctant behavior of middlemen. However, the second trial adopted a direct marketing approach (producer to exclusive outlet established by the project team) that showed the grower could earn 30% more profit than on traditional mangoes. This outcome was replicated in another trial involving growers, traders and high-end market retailers and a net return of USD 0.30 kg for growers was obtained. Similarly, traders also received a net return USD 0.046 kg while selling to high-end supermarket chains and earned USD 4.46 kg when selling to corporate customers. Retailers earned 20% more margin on ASLP 'best practice' mangoes. These results confirm that all chain participants can benefit from a commitment along the chain provided they have the desired resources, skills and an effective communication system supported by the relevant Government departments.

Structure and Length of Value Chains

A value chain has two dimensions: importance and length. Importance is given by the contribution of production relevant to this value chain to total production. Length corresponds to the average number of production stages a typical product has to undergo along this value chain. Wang et al. (2016) develop an analytical framework that decomposes industry value added or value of its final products along various value chain paths and measures the length of each component. This extends the analysis to domestic value chain and enhances the available analytical tools. Building on the ideas of Wang et al. (2016), this paper offers a distinct decomposition of total output, but attains mostly identical results. The contributions to the ongoing research include new or modified indicators that capture both dimensions to properly describe industry or country orientation towards and position in global value chains and a visualization method that brings together the results of all decompositions. For an empirical application, the paper utilizes the 2015 edition of the OECD Inter-Country Input-Output tables.

Triangle of Linkages among Modernising Markets, Sprayer–traders, and Mango-farming Intensification in Indonesia

The domestic mango value chain in Indonesia is transforming rapidly. This article examines the triangle of linkages among farmers’ participation in modernising markets, the emerging use of outsourced services by sprayer–traders (STs), and farm technology intensification. The key findings are as follows. First, small farmers—not just larger farmers—participate in modernising markets. However, the participation is by the upper tier of small farmers, defined in non-land asset terms. Second, although both small and larger farmers use STs, the strongest determinant of use of an ST is the interaction between having non-farm employment (thus, demand for substitution for own labour on the farm) and having a medium-sized commercial farm (thus, demand for skilled agronomic services). Farmers in mango cluster areas also tend to use STs. Finally, use of STs and participation in modernising markets spur farming intensification through the use of modern inputs.

Measuring China’s domestic production networks through Trade in Value-added perspectives

ABSTRACTEvaluating the role and performance of China's participation in Global value chains (GVCs) has been a hot policy and research issue in recent years. However, most GVCs-related literature about China focuses on country-to-country relations; less attention has been paid to China's domestic value chains (DVCs). GVCs should have their domestic foundations since strong linkages across domestic firms and regions can improve productivity through gains from specialization, which make domestic industries more competitive in GVCs in turn. This paper applies the so-called Trade in Value-added (TiVA) concept and the decomposition of domestic-regional trade in TiVA terms to re-measure the inter-industrial and interregional linkages in China's DVCs. We show that TiVA-based measures can significantly enrich our understanding on both the structure change of China's regional economy and the position and participation degree of Chinese regions in DVCs.

Upstreamness, exports, and wage inequality: Evidence from Chinese manufacturing data

In this paper we investigate within-firm wage inequality across heterogeneous industries that hold different positions in the domestic value chain, and across heterogeneous firms that have different exposure to trade. We find that the wage inequality problem is more severe in upstream industries than in downstream ones, and among firms with greater exposure to trade (i.e., larger export share of sales). Our findings support both classic and new new trade theories on wage inequality. In downstream industries where Chinese firms are typically engaged in processing and assembly work with intensive use of unskilled labor, trade leads to less wage inequality within firms. However, trade also introduces pro-competitive effects which usually benefit exporters and their skilled labor. The results hold after various checks and controls for robustness.

Mango value preferences of consumers in Pakistan

Understanding consumer value preferences is important for achieving optimal performance of horticultural value chains. This paper provides insights into the value preferences of mango consumers in Pakistan, using them to suggest measures for improving the performance of domestic mango value chains. Five focus group discussions with 40 consumers drawn from different social strata were held in Faisalabad, Pakistan. Thematic content analysis was performed on the qualitative data generated through these discussions. Findings showed that mango was a popular fruit consumed in both fresh and processed forms. Consumers ascribed value to its taste, health benefits, seasonal span and socio-cultural importance. The main attributes consumers considered in buying mangoes were price, taste, freshness, and freedom from damage and blemish. Consumers expressed concerns about high mango prices, non- Availability of safely ripened mangoes, retailer malpractices and ineffective regulations by the government. These findings highlighted that businesses in mango value chains did not pay adequate attention to consumer requirements. However, as consumers become more aware and experience higher living standards, not addressing their concerns will affect the profitability of value chain participants, many of whom will need to upgrade their practices. The study also suggested that the government should ensure that consumer concerns such as those relating to food safety are adequately addressed by relevant institutions and organisations.

Domestic Foundations of Global Value Chains

We analyze the relationship between domestic value chains (DVCs) and global value chains (GVCs). We study whether the development of DVCs has an effect on – or can even be considered a precondition for – the integration into GVCs. We provide evidence that DVC integration positively affects GVC integration. In other words, a functioning DVC is an important determinant for a successful integration into GVCs. The results hold in particular for backward linkages, namely, when intermediates sourced from abroad are used as proxy for GVC integration.

Global, regional and domestic apparel value chains in Southern Africa: social upgrading for some and downgrading for others

Growing South–South trade and concern with the social implications of participation in value chains brings into focus the trade-offs involved when production can be relatively easily located in developing countries with lower labour standards and products exported back to developing countries with large domestic markets. The article explores spatial shifts of this kind in the context of the South African and Lesotho apparel sectors using value chain analysis and drawing on world systems theory. It concludes that the emergence of a web of value chains coordinated by South African retailers has led to social downgrading in the South African apparel sector and social upgrading in Lesotho, creating a decent work dilemma.

Whether an Effective Innovation System is Inevitable for Sectoral Value Chain Development? Evidence from Coconut Sector in Kerala

The study has integrated the concept of sectoral system of innovation and value chain theory to find the regional dynamics of an evolving commodity chain. It has captured the reflections of tender coconut sector from the comprehensive study conducted in the Kasaragod district of Kerala. The coconut innovation system in India lacks strategic collaboration among various stakeholders and therefore is characterized by an array of actors/agencies operating at various levels without channelizing their efforts for the enhancement of the sector. The characteristics of this weak sectoral system are apparently reflected in tender coconut sector. The tender coconut value chain of Kerala has been found middleman-driven, which offers only a meager value share to the producer/farmer. For upgradation of position in the chain, the producers should proactively function in a group mode and should integrate the domestic value chain. According to the study, for ensuring a bargaining position for the producer, the chain should be restructured from the middleman-driven one to producer-driven. The study has argued that the support of an effective sectoral system of innovation is inevitable for the development of the sub-sectoral commodity chains.

Chaeboland Industrial Policy in Korea

Although the degree of sectoral targeting changed dramatically from the 1960s to the 1970s and then from the 1980s onward, Korea maintained an outward‐oriented, bottom‐up, and integrated approach to industrial policy, relying on close public–private consultation and international benchmarking. The government and the chaebol systematically studied what had to be done to fill the missing links in the domestic value chain and move up the quality ladder, through technology acquisition, human resource development, and construction of optimal‐scale plants aimed for the global market. As the capacity of the private sector increased and sectoral targeting became a more difficult proposition, Korea shifted to a more sector‐neutral approach, which provided support for industry rationalization and R&D regardless of sectors. This was in line with a larger shift from industrial policy to competition and corporate governance policy, starting with the enactment of the Monopoly Regulation and Fair Trade Act in 1980.

Livestock Value Chains: Prospects, Challenges and Policy Implications for Eastern India

Livestock Value Chains: Prospects, Challenges and Policy Implications for Eastern India

Globalisation, Welfare and Competitiveness: The Impacts of Chinese Imports on the South African Clothing and Textile Industry

The rapid spread of Chinese clothing exports globally is analysed with respect to their competitiveness and welfare industrial policy dimensions, using a framework of complementary/competitive relationships and direct/indirect impacts. The dynamics governing the South African clothing sector, the role of retailers in driving domestic value chains, and the reasons for the huge increase of Chinese clothing imports is discussed. The significant welfare benefit of cheap clothing imports for consumers is detailed. The impact on local manufacturers, forcing them to meet the competitiveness challenge and upgrade their production capabilities, as well as the policy challenges this creates for local producers, is explored.

Price Transmission and Trader Entry in Domestic Commodity Markets

Abstract Using detailed data from three simultaneous surveys of producers, traders, and exporters, this paper examines the transmission of international coffee prices through the domestic value chain in Uganda. We find that producer price fluctuations are inconsistent with constant transaction costs. We investigate three possible explanations for this finding: storage and contango, marketing costs that increase with price, and trader entry that raises search time. We test and reject the storage and marketing costs explanation, but we find some evidence of trader entry in response to a rise in export price. Our findings suggest that small itinerant traders enter in response to an export price increase, probably taking advantage of farmers’ ignorance of the rise in wholesale price.

Power relationships along the value chain: multinational firms, global buyers and performance of local suppliers

There is a growing literature exploring the role of international trade channels on economic growth, looking at the mechanisms through which import and export flows might affect productivity, technology diffusion and output growth. However, most of this literature appears to neglect an important part of the story, which is the form and the organisation of the relationships (the governance) among the various actors involved in these activities and their implications for development. The recent literature on global value chains and their governance takes this element explicitly into account, and we explore it empirically with a new dataset on Thailand. To this aim, we study global and domestic value chains in Thailand, and develop a quantitative measure of their governance, which takes into account different levels and types of buyer involvement with supplier activities. We then use this measure to explore econometrically its relationship with performance of suppliers. An important finding is that in value chains led by a multinational corporation, the relationships that the leaders have with their suppliers is multifold and generally more intense than for domestic value chains. Our estimates suggest that more intense buyer involvement with local suppliers, not only in the definition of product characteristics, design and quality, but also in technology dissemination and R&D, is generally associated with higher supplier productivity. This is consistent with other sources of evidence. However, the governance of the value chain appears to affect the productivity of suppliers in domestic value chains to a greater extent than for firms supplying multinational corporations or for exporters. We suggest that this result may be explained by the different nature of the information and knowledge being exchanged, and by the larger gaps in knowledge and capabilities between the domestic leader and its suppliers.