Global Value Chain Integration Research Articles

The impact of China's trade and FDI on Africa's GVC participation and economic upgrading

PurposeThis study examines the impact of China's trade and foreign direct investment (FDI) on Africa's global value chain (GVC) participation and economic upgrading.Design/methodology/approachThe study covered 48 African countries, cutting across the western, eastern, central, southern and northern subregions to cover the heterogeneity of the continent. The study adopted feasible generalized least squares panel VAR-Granger causality Wald test and system generalized methods of moments techniques for estimation.FindingsOverall, China's FDI to Africa and US-Africa trade have a linear relationship with Africa's GVC involvement and economic upgrading. The findings suggest that although China-Africa trade has a positive impact on GVC engagement and upgrading, the marginal effect decreases in the face of US-Africa and EU-Africa trade.Originality/valueThis study provides new evidence on the impact of China's FDI and trade on African economies' GVC participation and economic upgrading. To the best of the authors’ knowledge, this is the first study to empirically explore the effects of China's FDI and trade on Africa's GVC integration and economic upgrading as well as from the perspectives of backward and forward GVC participation. Furthermore, the study empirically examines whether the effects of Africa's economic cooperation with China relative to its GVC engagement differ from those of Europe (EU) and the US via a comparative regression.

Distributive Profiles Associated with Domestic versus International Specialization in Global Value Chains

The present article sets out trends in functional income distribution implied by countries’ integration in Global Value Chains (GVCs), taking also into account interregional interactions (North-North, South–South and North–South). Through the application of an innovative input-output methodology, it quantifies inter-country differences in functional income distribution by means of a novel indicator to estimate the distributive profile associated with domestic vis-à-vis international specialization. The focus is on trade flows, and the analysis carried out allows to single out the distributive implications of alternative regional integration projects, in view of a more inclusive multilateral trade system.

The trade effects of product market regulation in global value chains: evidence from OECD and BRICS countries between 2000 and 2015

Global Value Chains (GVC) have reshaped the landscape of international trade. The quality and intensity of regulation significantly impacts firms' competitiveness and their ability to engage in GVC. Economic literature suggests that regulation of product market competition has a detrimental effect on trade by decreasing productivity, innovation, and economic growth. This paper expands existing knowledge on this relationship by examining the influence of product market regulation (PMR) on value-added trade flows in an augmented gravity model. We constructed a data panel with trade data from 40 OECD and BRICS countries in the period from 2000 to 2015 and combined it with an extensive multi-level indicator set on PMR developed by the OECD. By disentangling the PMR indicators, we account for the heterogeneity of regulation and potential different trade effects. Overall, our evidence suggests that PMR has a negative impact on trade. Further, our results indicate that the negative impact stems largely from barriers to trade and investment. For the BRICS, our results suggest the contrary: We observed an overall positive trade effect of PMR, mainly driven by barriers to trade and investment. Our results support identifying policy areas in which regulatory reform can improve the integration in GVC and emphasize different approaches to economic policy, particularly in emerging economies such as the BRICS. Moreover, the results underline the detrimental effects of increasing protectionism and tariff hikes, a phenomenon that we increasingly observe in recent years from the world’s largest economies, such as the United States and China.

Gain or Loss from this Turn’s Rate Hike: Evidence from Tesla and USD Index

A series of grave problems caused by energy scarcity and environmental pollution have gradually become the focus of governments and automobile manufacturers, and all countries agree that energy saving, and emission reduction are the inevitable directions of the future development of industrial automobile technology. As a global pioneer of new energy pure electric vehicles, Tesla has created a new concept of using Internet thinking to produce cars. At the same time, under the influence of the epidemic disturbance and the conflict between Russia and Ukraine, the supply and demand of global commodities such as crude oil and grain are tense. In addition, the Fed has raised interest rates for three rounds since June 2022, leading to rising inflationary pressure in the global market. Rising cost pressure in industries with a high degree of global value chain integration (such as automobiles, batteries, and mechanical equipment) and Tesla's earnings are also affected by exchange rate fluctuations. This paper uses the VAR model to explain the dynamic relationship between the exchange rate of USD/offshore RMB and Tesla stock price, establishes the ARMA-GARCH model to predict and analyze how the change of exchange rate affects the volatility of Tesla stock returns, and predicts the impact on industrial enterprises like Tesla.

Viewpoints in Global Value Chains: Evidence from Sub-Saharan Africa

The aim of this paper is interrogate various perspective such as Investments, Infrastructure, Governance and Macroeconomic factors and how they influence global value chains in sub Saharan Africa. Data was derived from 37 sub Saharan Africa countries for the period 2003 to 2018. Panel corrected Standard Errors estimation model was adopted in analysis. Both the direct relationships and controlled relationships were tested. Macro-economic factors such as GDP growth rate, exchange rate, inflation rate and Interest rates were used as controlling factors. The paper established a significant influence of Investments on Global value chains and that it can explain up to 45 per cent of the variation. Similarly, infrastructure has a significant influence on global value chains in sub Saharan Africa and that it can explain up to 67 per cent of the variations. Governance also has a significant influence on global value chains and it can explain up to 10 per cent of the variations. The overall model was significant with a 76 per cent explanation of the variation in global value chains in sub Saharan Africa. Therefore, the paper recommends for a promotion of value added manufacturing, and an integration in global value chains. Further, the paper recommends for enhanced resource allocation to infrastructure development to aid in the reduction of the production cost and to stream line governance.

The impact of commodified non-timber forest products on the livelihoods of San in Northern Namibia

ABSTRACT In Namibia, the commercialisation of non-timber forest products (NTFPs) is often promoted as a means to improve rural livelihoods, especially for vulnerable communities. This paper analysed how NTFP value chains are integrated into and contribute to the livelihoods of Khwe and !Xun San harvesters. Accordingly, the working conditions, employment and upgrading opportunities of the globally traded Devil's Claw were compared to those of regionally traded products, including Natal Oranges. A mixed-method approach was applied to collect data in Okongo Constituency and Bwabwata National Park. Findings revealed that while NTFPs contribute to the harvesters’ income generation, the income is insufficient to sustain their livelihoods. Interestingly, the results of both regional and global value chain integration do not lead to improved livelihoods. Further research is needed to analyse the synergies between the government, traditional and local authorities, NGOs, and other institutions in implementing laws that promote equitable sharing of benefits from NTFPs.

U. S. Crony Corporatism in the Context of Vertical Integration in Global Value Chains

U. S. Crony Corporatism in the Context of Vertical Integration in Global Value Chains

Foreign direct investments and participation in global value chains: New evidence from advanced manufacturing industries in Central and Eastern Europe

Foreign direct investments (FDIs) and trade within global value chains (GVC) have been considered one of the most important vehicles of economic development and competitiveness, especially for countries in transition. The countries of Central and Eastern Europe are competing to attract not only high amounts of FDI inflows but they also put emphasis on the FDIs’ sectoral structure. FDI inflows into advanced industries can represent the basis of technological development that will lead to the creation of a greater number of high-skill jobs and a higher level of innovation, thereby influencing the reduction of the economic gap in relation to developed countries. This study aims to explore the importance of FDI inward stock for GVC participation in the advanced manufacturing industries in eleven EU member states that transferred to market economies in the 1990s and attracted vast amounts of FDI inflows since then. The dynamic panel data analysis results indicate the importance of FDI inward stock in the manufacturing industry for the GVC participation in advanced manufacturing industries across this set of countries while also stressing the important implications of manufacturing share in GDP changes for these industries’ backward GVC participation. The findings confirm a positive association between attracting FDI in the manufacturing sector and GVC integration in advanced manufacturing industries. Such FDI targeting can be a vehicle for internationalization and development of high-tech and knowledge-based industries.

Global value chains and external adjustment: Do exchange rates still matter?

The exchange rate has traditionally been regarded as a key mechanism of external adjustment because its movement induces changes in exports and imports by affecting the price of tradable goods relative to domestic goods. However, the relevance of this mechanism has been questioned with the rise of global value chains (GVCs), because exporters increasingly use imported inputs, which implies that exchange rates affect both the price and production costs of exports. This paper studies how a country's trade balance responds to exchange rate changes in the presence of GVCs. It uses bilateral trade data for 37 economies over 2000–14, exploiting information in global input-output tables to measure countries' integration into GVCs. The results indicate that GVC integration dampens the exchange rate elasticity of export and import volumes but also leads to larger trade flows in proportion to output. Overall, the findings suggest that exchange rates remain relevant for external adjustment. • With global value chains, the impact of exchange rates on trade flows is different. • Global value chains dampen the exchange rate elasticity of trade flows. • Both, short and medium-term elasticities are lower with global value chains. • But global value chains lead to greater trade flows in proportion to GDP. • Exchange rates remain a key mechanism for external macroeconomic rebalancing.

Impact of global value chains integration on firm performance in Sub-Saharan Africa: evidence from micro panel data

Impact of global value chains integration on firm performance in Sub-Saharan Africa: evidence from micro panel data

Impact of Global Value Chains Integration on Firm Performance in Sub-Saharan Africa: Evidence from Micro panel data

Impact of Global Value Chains Integration on Firm Performance in Sub-Saharan Africa: Evidence from Micro panel data

Global Value Chains as a Constraint on Sovereignty: Evidence from Investor–State Dispute Settlement

Abstract That economic integration constrains state sovereignty has been a longstanding concern and the subject of much study. We assess the validity of this concern in the context of two very particular components of contemporary economic globalization: global value chain (GVC) integration and Investor–State Dispute Settlement (ISDS). First, we document that host states have abandoned nearly 24 percent of regulations disputed by private investors in ISDS between 1987 and 2017. This behavior is puzzling because ISDS only requires host states to provide monetary compensation to investor-claimants and not the abandonment of disputed regulations. We theorize that host states are more likely to abandon a disputed regulation when the claimant has a greater potential to disrupt GVCs in the host economy. We then employ the non-parametric difference-in-differences estimator by Imai, Kim, and Wang (2021) and find that ISDS filings cause substantial decreases in GVC trade. Following this result, we provide descriptive statistics and qualitative evidence that support our core theoretical proposition that multinational corporations (MNCs) with the potential to disrupt GVC integration are more likely to see host states changing regulations in their favor. Our argument and evidence suggest that GVC integration can grow an MNC’s power to such an extent that the host state abandons a regulation that the MNC disputes.

Technology level and the global value chain

ABSTRACT This paper investigates the role of technology levels in shaping the structure of the global value chain (GVC) at the macro level. We incorporate the Ricardian comparative advantage into the production of intermediate goods involving both snake-and spider-type supply chains to capture the overall GVC integration. We analytically find that the country with a higher technology level produces the intermediate inputs at production stages involving a higher degree of complexity, which is consistent with the real data. Finally, we calibrate the GVC participation value and wages and document the good fit of our model to the real-world data.

Externalities in global value chains: Firm solutions for regulation challenges

AbstractResearch summaryNegative externalities in global value chains (GVCs) create challenges for regulation. We establish conditions under which firms are more likely to adapt their GVCs to rectify negative externalities that occur at global scale. Firms in GVCs vary in relation to their active involvement in attending to negative externalities in a predictable way, according to their awareness (A) of these externalities, motivation (M) to address them, and the capability (C) to do so. Firms in GVCs can self‐correct imperfections by strategy changes, or new firms can be recruited into the GVC with the awareness, motivation, and the capability to attend to negative externalities. National governments may find these externalities to be a significant policy challenge, particularly when they extend across national jurisdictions.Managerial summaryPrivate mechanisms, through firm strategy or new entrants into an industry, can address negative externalities created in GVCs. The agency of GVC members is crucial in self‐correction via awareness, driven by GVC integration; motivation to act, driven by GVC accountability; and the capability to implement the necessary changes, driven by GVC leadership. GVCs with more exchanges of knowledge and information among members will be more aware of the costs they generate on third parties. GVCs with members who are more involved with stakeholders and who prioritize CSR will have greater motivation to attend to their externalities, and larger GVCs that span national borders, dominated by a strong member, may be more capable of having greater influence on the externalities the GVC creates.

Global value chains and product sophistication in developing countries; the case of Indian manufacturing

ABSTRACT This paper examines whether linking into Global Value Chains (GVCs) can facilitate product upgrading in developing country firms, enabling them to climb up the value-chain ladder. The analysis is conducted using an unbalanced panel of Indian manufacturing firms in the period 2001–2015. Extensive data at the product-firm level is used to construct a sales-weighted average product sophistication level of Indian firms. To account for econometric issues of endogeneity and self-selection, the study employs the System GMM estimator and Propensity Score Matching (PSM). Findings indicate that linking into GVCs boosts the average product sophistication level of Indian firms by roughly 2 percent. Younger, more innovative, and more embedded GVC firms capture higher product sophistication gains from GVCs, while no significant impact is found for foreign investment. Results are robust to the use of different measurement techniques, model and lag specifications and methodologies. Findings suggest that designing trade policies in developing countries to increase GVC integration can enable product upgrading but there is a need to boost internal innovative capabilities to maximise gains from linking into GVCs. Further, the study raises important concerns regarding the future of export sophistication in India, demonstrating a shift in India’s GVC trade towards the Global South and its tendency to export less sophisticated goods to Southern partners.

A Framework for Short- vs. Long-Term Risk Indicators for Outsourcing Potential for Enterprises Participating in Global Value Chains: Evidence from Western Balkan Countries

This paper aims to present a benchmarking framework for short- and long-term risk of enterprises in emerging markets that seek integration in global value chains. The benchmark instrument aims in particular to assess short- and long-term risk based on accounting data and estimations of key financial ratios for enterprises located in the Western Balkan region and operating in the materials, industrials, and customer-discretionary industries. In total, the paper considers 310 enterprises. Given the geographical proximity of the region, the benchmark instrument for short- and long-term risks serves to assess the outsourcing potential these enterprises have toward foreign enterprises dominating larger markets such as the European value chain. The framework is applicable to a large-scale annual data series collected on subindustry level in order to obtain a more granular analysis of a particular industry and its respective value chain. The benchmarking instrument indicates that those subindustries performing better both at short- and long-term risk display a higher outsourcing potential and more opportunities for integration in global value chains.

The globalization of production, national labour regulations and income inequality in the global North and South, 1980–2013

AbstractA central concern over global value chains (GVCs) is whether the integration of national firms into GVCs exacerbates income inequality within countries. However, despite decades of research, the distributional consequences of GVCs remain unclear in the empirical literature. Drawing on panel data from 96 countries between 1980 and 2013, we examine the effects of GVC integration on market income inequality and whether national labour regulations moderate these effects. We find integration increases inequality in the global North and South. More importantly, we find labour regulations amplify the inequality effects of integration in Southern countries by expanding the size of the informal sector while suppressing these effects in Northern countries by promoting unionization. This suggests institutional power from national labour regulations may enhance the bargaining power of labour in the North through increasing collective resources while disempowering labour in the South through reinforcing labour market segmentation between formal and informal sectors.

GLOBAL VALUE CHAINS: OPPORTUNITIES COME WITH CHALLENGES IN TUNISIA

Using data from the OECD-Trade in Value Added (TIVA) database, this paper analyzes Tunisia’s national and sectoral participation and positioning in global value chains (GVC) during 2005–2015. This paper also aims to illustrate countries with which Tunisia is highly integrated into GVC, by exploring the countries of origin of foreign value added in Tunisian exports, and the countries exporting Tunisian domestic value added share of its gross exports. Tunisia is among the most integrated countries, during the whole period of study. It has a high level of participation in GVC in many industrial activities, particularly in the textile, clothing and leather sector, food processing, and electronic and electrical equipment. The backward linkage in its GVC integration can be explained by the choice of specialization in its production, which roughly explains its position in the middle-stream–downstream. However, its participation in value chains remains regional rather than global. Around 60% of its GVC participation is with European countries. Overall, our results suggest that Tunisia has a potential that has been well exploited for the period 2005–2010 (period before the Tunisian revolution). However, this success remains limited since political and socio-economic crises have limited the potential of Tunisia’s current participation in the GVC.

Within- and between-firm wage inequalities and trade integration in GVC

This paper examines between- (inter) and within- (intra) firm wage inequality using rich employer-employee data for 12 European countries. We confirm that much overall wage inequality is observed within sectors and within occupations. The share of the within- and between-firm components in overall wage inequality varies across countries. We estimate the link between involvement in global value chains (GVCs) and wages differentiating into the within- and between-firm components and test the hypothesis that there is a different effect of GVCs on wages depending on the position in a value chain (close to or far from the final demand). The results indicate that the between-firm wage component is the main channel through which involvement in global value chains is materialised. However, the exact sign of the relationship between GVC growth and wages (conditioned on upstreamness) is country-heterogeneous albeit its marginal economic significance.

Modelling global value chains: From trade costs to policy impacts

AbstractI use an approach from the family of ‘new quantitative trade models’ to explore the links between trade costs and integration in Global Value Chains (GVCs). The model conceptualises GVC trade through a multi‐country, multi‐sector Ricardian model that nests the standard structural gravity model. It provides a general framework in which to assess the impacts of changes in iceberg trade costs on GVC trade, understood as the sum of backward linkages and pure double counting, in line with recent work on trade in value added. As an example, I use the model to show that observed changes in trade facilitation performance between 2015 and 2019 have strong explanatory power for observed changes in GVC trade during the same period: the model accounts for over one‐third of the observed change, albeit with substantial variation across countries and sectors.