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New study shows close link between GVCs participation and economic development

Participation in Global Value Chains (GVCs) can play an important role in a country’s development, however countries must reach a certain threshold in industrial competitiveness to be able to integrate GVCs.

This is a key finding of a new report titled “The Global Value Chains and Industrial Development: Lessons from China, South-East and South Asia”, which was launched today at the 2018 Forum on Globalization and Industrialization. It was developed by the United Nations Industrial Development Organization (UNIDO) and the University of International Business and Economic UIBE), China.

The global economy is increasingly characterized by the fragmentation of industrial production process along GVCs. East Asia has experienced some of the most important GVC developments. Countries in the region are primary beneficiaries of GVCs participation and its contribution to industrial development and economic growth: offering valuable insights into factors of successful GVC participation and upgrading.

“Empirical work at macro, micro, and individual firm level reinforces the importance of GVCs in 21st century industrialization,” said Richard Pomfret, Professor of Economics at the University of Adelaide, Australia, during his presentation of the report at the Forum. “By requiring expertise in a task rather than creation of an integrated industry, GVCs ease the pathway to industrialization.”

“Participation in GVCs requires many characteristics already known to be preconditions for economic development. More importantly, upgrading within GVCs requires skills, good infrastructure and other characteristics that need supportive public policies.”

The report also concludes that, in low-income country, GVC participation has contributed to inclusive growth, reducing poverty, and increasing gender participation and equity in the workplace.

“Developing and emerging economies try their best to participate in GVCs and contribute to global economic growth. This joint research report provides the pathways and policy recommendations on how to integrate into GVCs and climb the ladder effectively,” said UIBE Professor and Vice-President Zhongxiu Zhao at the event.

The insights of the report provide the basis for a two-pronged policy approach: policies must first seek to increase industrial competitiveness to enable GVC participation and to ignite industrial development. Policies must also focus on continuous improvements in industrial competitiveness to enhance the terms of GVC participation and sustain industrial development for deep structural change.

The report further explores whether participation in GVCs has led to structural change, and the impact of GVCs on the environment through changes in emissions.

“If we want to achieve the Sustainable Development Goals by 2030, efforts to integrate GVCs must be socially and environmentally sustainable,” said UNIDO Director of Policy Research and Statistics, Cecilia Ugaz Estrada. “Given the ramifications for both global climate change and environmental resources, countries should avoid expanding production in polluting activities.”

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