Developing economies that overcome obstacles to global value chain participation will be able to realize economic growth much faster, according to a new joint report by three global trade and economic organizations.
In fact, those developing nations with the fastest growing GVC participation have gross domestic product per capita growth rates of 2 percent above average, according to the report “Implication of Global Value Chains for Trade, Investment, Development and Jobs.”
The paper was published jointly by the Organization for Economic Cooperation and Development (OECD), World Trade Organization (WTO), and United Nations Conference on Trade and Development (UNCTAD).
For these developing countries to effectively participate in GVCs, they will have to make significant further investment in technology dissemination, skill building, and upgrading, the report said.
But succeeding at this will pay big dividends, since active GVC participation can offer them new prospects for growth, development, and jobs.
“Success in international markets depends as much on the capacity to import high-quality inputs as on the capacity to export: intermediate inputs account for over two-thirds of the goods and 70 percent of the services traded worldwide,” a joint statement by the OECD, WTO, and UNCTAD said.
The new report outlined how both the costs of trade and investment protectionism and the benefits of multilateral opening in agriculture, manufacturing, and services are much higher in today’s highly interconnected world than previously thought.
Practical trade facilitation reforms offer significant potential to reduce trade costs and improve countries’ ability to participate in GVCs.
“Trade facilitation is about easing access to the global marketplace and doing away with the complicated border crossing procedures and excess red tape that raise costs, which ultimately fall on businesses, consumers and our economies,” said OECD Secretary-General Angel Gurría.
“Reducing global trade costs by just 1 percent would increase worldwide income by more than US$40 billion, 65 percent of which would accrue to developing countries,” Gurría added.
Open, transparent, and predictable trade and investment policies need a range of flanking policies to ensure benefits from GVCs are inclusive and widespread. In some developing economies, particularly the less developed, there remains much work to be done to address specific obstacles to effective participation in GVCs.
“This report helps policymakers to examine with greater clarity the opportunities and challenges associated with the phenomenon of global value chains. Global value chains are undeniably an important component of the globalization process of today,” said WTO Director-General Roberto Azevedo.