2 July 2015 | Trade, Global Value Chains and Economic Transformation

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Overseas Development Institute, London.

Economic transformation involves the movement of factors of production toward higher productivity and/or value addition firms or sectors. It has traditionally been assessed through the degree of export diversification, taken as an outcome of the process.

Trade can support this process, e.g. through its impact on firm competitiveness – access to cheaper and better quality inputs, and opportunity to take advantage of economies of scale. The literature on global value chains (GVCs) further suggests a new way of looking at economic transformation (which was traditionally seen as moving from agriculture to manufacturing and services). Integration in global production networks allows countries to unlock their comparative advantage, but rather than focusing on producing all parts of the entire chain, it is now possible to focus on specific tasks and sub-sectors.

The discussion focused on the following questions:

  • Under which circumstances does trade openness foster export diversification through GVCs?
  • What are the determinants of GVC integration?
  • How and under which circumstances GVCs integration spills over beyond integrated sector and benefits the domestic economy, thereby supporting a sustained economic transformation?
  • What are the trade policy implications at the domestic, regional and global levels?

 

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