Global value chains (GVCs) powered the surge of international trade after 1990 and now account for almost half of all trade. This shift enabled an unprecedented economic convergence: poor countries grew rapidly and began to catch up with richer countries. Since the 2008 global financial crisis, however, the growth of trade has been sluggish and the expansion of GVCs has stalled. Meanwhile, serious threats have emerged to the model of trade-led growth. New technologies could draw production closer to the consumer and reduce the demand for labor. And conflicts among large countries could lead to a retrenchment or a segmentation of GVCs. The World Development Report (WDR) 2020: Trading for Development in the Age of Global Value Chains examines whether there is still a path to development through GVCs and trade.
According to the report, global value chains:
- Promote productivity and growth: A 1% increase in participation is estimated to boost per capita income levels by more than 1%—about twice as much as standard trade. In Ethiopia, firms participating in global value chains are more than twice as productive as similar firms that participate in standard trade.
- Reduce poverty: Since gains in growth from global value chains are larger than from trade in final products, their impact on poverty reduction is also larger. Regions in Mexico and Vietnam that participated more intensively in global value chains experienced greater reductions in poverty.
- Deliver better jobs: Firms in global value chains draw people into more productive manufacturing and services activities and tend to employ more women, supporting structural transformation in developing countries.
- Global value chains (GVCs) account for almost 50% of global trade today. Over the past 30 years, they have helped poor countries grow faster, lifting many out of poverty.
- Trade conflict and the lack of major reforms may inhibit GVCs from remaining a force for prosperity.
- GVCs can further boost inclusive and sustainable growth, create better jobs and reduce poverty, if developing countries implement deeper reforms and industrial countries pursue open, predictable policies.
- Global value chains (GVCs) powered an economic revolution over the past three decades: growth accelerated, incomes rose, and poverty rates plunged.
- A 1% increase in GVC participation is estimated to boost per capita income levels by more than 1% – about twice as much as conventional trade.
- Today, almost 50% of global trade involves GVCs.
- But the expansion of GVCs has plateaued since 2008 due to a decline in overall economic growth and the slowing pace of reforms. The absence of major trade initiatives and growing trade conflict could make it more difficult for developing countries to benefit from GVCs.
- In a worst-case scenario, if trade conflict worsens and causes a slump in investor confidence, up to 30.7 million people could be pushed into poverty (below $5.50 a day), and global income could fall as much as $1.4 trillion.
- New technologies, such as automation and 3D printing, are a frequent cause for concern. But they are more likely to boost GVCs as trade and communication costs come down, new products are developed, and productivity increases.
- GVCs can continue to be a force for sustainable and inclusive development if:
- Developing countries speed up trade and investment reforms, and improve connectivity.
- Advanced economies pursue open, predictable policies.
- All countries strengthen social and environmental protection, to ensure the benefits of GVC participation are shared and sustained.
- In the age of GVCs, the need for greater international cooperation is particularly urgent.
- Public policies and economic conditions in one country strongly affect trade partners through production linkages. The benefits of coordinated policy action are even larger with GVCs than conventional trade, as goods and services cross borders multiple times.
- All countries need to work cooperatively to address policies that distort trade and to keep markets open.