Global Value Chains account for 50% of trade

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The World Bank says Global Value Chains (GVCs) presently account for nearly 50 per cent of trade worldwide.

The bank said this in its “World Development Report 2020: Trading for Development in the Age of Global Value Chains”, released in Washington D.C. on October 9, 2019.

The report marks the World Bank Group’s first trade-focused development report since the late 1980s.

According to it, GVCSs have powered an economic transformation ever since, allowing the poorest countries to quickly climb the development ladder.

It added that such chains enable developing countries to specialise and grow wealthier without having to build whole industries from scratch.

It, however, said that their growth had slowed since the financial crisis of 2008, adding that trade frictions have created uncertainties over market access, causing firms to consider delaying investment plans.

The reason it gave for this was lower global economic growth and investment and lack of major liberalisation initiatives in recent years.

“Moreover, the gains from participating in global value chains have not been distributed equally across and within countries.

“Environmental costs are growing, mainly from higher carbon dioxide emissions due to transportation of intermediate goods across greater distances.”

The report also said that North and Sub-Saharan Africa have managed to join GVCs in the apparel, food and automotive industries and in some business services.

“However, Africa remains a small actor in the global economy, accounting for just three per cent of global trade in intermediate goods.

“African exports tend to enter at the very beginning of GVCs. A high share serves as inputs for other countries’ exports, reflecting the still-predominant role of agriculture and natural resources in African exports.

“Botswana, the Democratic Republic of Congo and Nigeria have become integrated in GVCs through exports of oil and other natural resources.”

The report said that in an era of slowing trade and growth, developing countries could achieve better outcomes for their citizens through reforms that boost their participation in GVCs.

These reforms, it said, could help them expand from commodity exports to basic manufacturing, while ensuring that economic benefits are shared more widely across society.

Pinelopi Goldberg, World Bank Group Chief Economist, said GVCs have played an important part in growth by enabling firms in developing countries to make significant gains in productivity and by helping them transition from commodity exports to basic manufacturing.

“In the age of GVCs, all countries have much to benefit by speeding up reforms that increase commerce and boost growth.

“Countries need trade to develop, and an open, predictable environment benefits everyone.

“To ensure sustained social support for trade, policymakers need to ensure that the benefits of global value chains are widely shared among a broad range of groups, especially the poor and women and that the environment is protected.”

The report said that some of its key findings were that GVCs were important for development.

It said that GVC trade exhibits two features that distinguish it from traditional trade: hyper-specialisation and durable firm-to-firm relationships.

These features, it said, allowed firms to raise productivity and income, rendering GVC trade more powerful than traditional trade in supporting growth and poverty reduction.

It also said that all countries participate in GVCs but in different ways, adding that the intensification of GVCs was driven by a handful of regions, sectors and firms.

According to the World Bank, a GVC breaks up the production process across countries and firms specialise in a specific task and do not produce the whole product, thereby having different companies across the world involved in the production of a particular product.