How important are Global Value Chains for development? Read the new WDR2020 draft report and comment

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WDR 2020 Framework

 

Following an intense research and writing process over the last 10 months, I am pleased to announce that a draft of the World Development Report (WDR) 2020 – Trading for Developing in the Age of Global Value Chains is now available online for public comment. 

Why Global Value Chains (GVCs) and why now? 

The World Bank’s last report on trade was more than thirty years ago – WDR 1987 Industrialization and Foreign Trade. In the meantime:

-   Trade’s share of GDP globally has doubled;

-   Average income grew by 24 percent globally;

-   Poverty declined from 35 percent to 10 percent;

-   The income of the bottom 40 percent of the world population increased by close to 50 percent.

Through all this, global value chains has emerged as the dominant mode of doing international business. 

While several GVC reports have been written, the 2020 WDR marks a milestone in the following respects: 

-    The report approaches the topic from a development perspective, whereas much of the literature to date focuses on advanced countries and a few large developing countries. 

-    The report showcases and advocates the need for new types of data and analysis on the determinants of GVC participation and the consequences for economic growth, inequality, poverty, employment, and the environment.

-    The report also looks ahead at how new technologies and changing trade policies may affect the prospects for development through GVCs.

Tackling the big issues

How important are GVCs for development? We approached this topic with an open and objective mind, determined to discuss both the pros and cons of GVC-led economic growth and development. 

I was myself surprised by the extent to which GVCs made a difference. We found that GVC trade in the past 30 years has accelerated economic growth and reduced poverty greatly. It has enabled an unprecedented convergence: poor countries grew faster and began to catch up with richer countries. Productivity and incomes rose in countries that became integral to global value chains—China, Vietnam, and Bangladesh, among others. And the steepest declines in poverty occurred in precisely those countries.

One of the most exciting findings is that all empirical evidence – from cross-country, to sector, to firm-level – supports a picture of GVCs greatly boosting productivity and incomes. In contrast to “standard” trade carried out in anonymous markets, GVCs typically involve long-term firm-to-firm relationships. This “relational” nature of GVCs makes them a particularly powerful engine for growth, as they represent a natural vehicle for technology transfer. Firms have a shared interest in specializing in specific tasks, exchanging technology and learning from each other. This is most easily done in the context of longer-term firm-to-firm relationships. 

But not all our findings are positive. There is strong evidence that the gains from GVC trade are being distributed unequally within and across countries. This evidence has improved our understanding of why some workers, firms, and communities have been hurt by globalization as well as where environmental risks have arisen. It has helped us reflect on strategies that promote GVC participation as well as policies that ensure a fair distribution of benefits across society and containment of potential environmental costs amidst a future of rapid technological change and policy uncertainty.

The draft concludes that GVCs can continue to boost growth, create better jobs and reduce poverty, provided developing countries implement deeper reforms and industrialized countries pursue open, inclusive, and predictable policies. Importantly, if countries fail to invest in human capital, they may end up in a middle-income trap and miss out on the next stage of development. The evidence also indicates that technological change is likely to be more a boon than a curse for trade and GVCs. The benefits of GVC participation can be widely shared and sustainable if all countries enhance social and environmental protection. 

We want to hear from you

I am sure you have many questions, and I hope we manage to answer most of them. 

I encourage you to review the draft to learn more about our analysis and findings, and to provide feedback based on your own experience. Please do share your views in the comments section below or via email, preferably by the end of July. The team will continue to work on the draft through the summer and we welcome all input. The final Report will be published in October.
 

Join the Conversation

Santanu Kumar Ghosh
July 15, 2019

Thank you for the nice document. After the first read I shall get back to you.
Regards.
Santanu.

Joseph
July 15, 2019

Very interesting preliminary findings. My concern remains that GVC is quiet at the very high level when it comes to the participation of players from Developing countries. I am hoping that your report then could bring in the dimension of how Regional Value Chain can be a stepping stone for joining GVC and ultimately have the same expected impact.

Patricia Nsiime
July 15, 2019

Thanks for the blog. Personally I am a specialist in agriculture value chains, I have worked on value chain projects for more than 10 years now.

It is indeed impressive growth the GVCs have influenced from the information given above, but my concern is the smallholder producers in developing countries. Are they really participating profitably in the GVCs? What particular strategies have been laid to ensure their participation?

Rodrin Tinashe Wafawanaka
July 15, 2019

The report is sound ..However i think it requires works very well in countries with progressive regimes that prioritise economic development. In Africa where i come from ,the poverty rates continue to soar because many governments lack political will to develop their respective economies . Economic policies discourage foreign direct investment which is a key driver of economic growth eg the Indigenisation policy in Zimbabwe .Policy inconsistency is also a challenge to bussines.Moreover, corruption is endemic, political leaders continue enrich themeslves with public funds and ill-gotten wealth from minerals eg in Zimbabwe the Chiadzwa diamonds scam. The institutions and laws to curb corruption are there but there is no will strengthen them. The space for civil society to advocate for transparency is limited due to authoritanism. The GVC model is good but in Africa there is no political will to have it implemented.
Thank you.

Thein Zan(Mr)
July 15, 2019

I am wondering about trajectory on market share, any adverse impact on world market segment by trade war, poverty rate is very generalized in other way round mistaken by generalization and may be swayed by optimum growth countries but not account for lagged behind countries, like Myanmar still remains in 26.1%, income increase from 40 to 50% is it in term of real terms value!

Andrewv Adedayo A
July 15, 2019

Thank you Pinelopi.

My worry is the rise of populism engendering protectionism. And since we cannot separate politics from economics, we may continue to see very negative disruptions to GVCs due to populist policies and agenda.

With bold reforms, I'm optimistic African countries can negotiate better deals within GVCs.

andrew Adedayo A

ashraf patel
July 15, 2019

Excellent. Timely and relevant WDR report.
However, there needs to be environmental impact analysis on sources of the resources esp in Africa

Kareem Jelilat Folasade
July 15, 2019

I will review the draft very well and I will later send my own view and questions if there is any

John
July 15, 2019

The article is rich, informative and seemed to have opened a new learning curve for me in particular . However, my reservation lies with the fate of many developing/ emerging markets who are dumping grounds for imported products from advanced industrialized economies. These poor countries can hardly engage in competitive trade and key into the synergistic benefits of GVC. Have you given attention to the inhibitions and consequences of corruption and instability that bedevil most of the third world nations. These are potential challenges to the realization of GVC concept. But I am optimistic it is achievable. John Ohanwadi

Carlos Reviero
July 23, 2019

Thank you for the insight.

My question is how does the GVC gives guarantees for emerging economies to develop industry and commerce to limit their dependencies on the G20 countries. For my industry, onsite power generation, the larger economies is using the 4th industrialization to increase economic growth at the expense of the emerging economies.