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Global Value Chains: Challenges, Opportunities, and Implications for Policy

Posted August 25, 2014

International production, trade and investments are increasingly organized within so-called global value chains (GVCs) where the different stages and aspects of the production process are located across different countries. The growth of GVCs in recent years has increased the degree to which economies are interconnected and has led to the international dispersion of specialized activities such as design, production, marketing, distribution, etc., in a new “trade-investment-services-know-how nexus.”
The Organization for Economic Co-operation and Development (OECD) has been a strong advocate of the GVC production concept as an effective means of stimulating global economic prosperity and trade. The international group published a book on the subject last year and has also prepared a wide range of studies and papers aimed at helping decision makers around the world to better understand the effects of GVCs on a number of policy domains.

This past month, the OECD released Global Value Chains: Challenges, Opportunities, and Implications for Policy, a report written in conjunction with the World Trade Organization and the Word Bank. Submitted to the G20 trade ministers who recently gathered in Australia, the report outlines the current state of the GVCs, puts forward a number of policy prescriptions and strongly suggests that countries take a “whole-of the-supply-chain” approach to facilitating progress in this regard. The policies advocated include: good infrastructure and connectivity, a business-friendly environment, flexible labour markets, access to credit, innovation and macroeconomic stability. Other policies are more targeted, such as tariffs and other trade restrictions, subsidies, local-content or export-performance requirements, and restrictions on foreign exchange.