In the past, companies primarily produced goods in one country as that was the most efficient way at the time. However, as technology gets more sophisticated, companies are finding that global value chains (GVCs) are the most effective and cost-efficient means of manufacturing goods. This article will explore how GVCs progress developing economies.

What are GVCs?

GVCs are the means behind fragmenting the production process so that different steps can occur in different countries. For example, to make a smartphone, a GVC would call for labor and supplies from multiple suppliers in different countries. Making a smartphone would also require assemblage in another country and selling in other target places. These complex production orders, spanning across multiple countries, have transformed trade as many know it. Both the economic and diplomatic implications of these chains are far-reaching.

The Importance of GVCs

GVCs are robust drivers of productivity and job growth, and they push for improved living standards. The way that a country engages with a GVC determines how that country benefits. According to the Global Value Chain Development Report that the World Bank, World Trade Organization and other partners published, nations that embrace these production chains grow more quickly than normal. They import and export not only manufactured goods but skills, information and technology.

For developing countries, this is an ideal opportunity to vary exports and reinforce the global economy. Under GVC operations, developing countries can grow by embedding more technology and expertise in their production lines. This higher value in labor and production also increases the value of labor and technological tasks, which helps boost the economies of developing countries when exporting products.

Countries that have Grown Under GVCs

Bangladesh, a country in South Asia, uses a GVC model for a variety of sectors, including the garment and apparel sector, which is especially prominent overseas. Garment sector job growth is a catalyst for Bangladesh’s poverty reduction and has had significant positive social impacts.

To elucidate, this GVC model led to the creation of over three million jobs beginning in the early 2000s, with women capturing approximately 70% of those jobs. Not only did this contribute to the growth of Bangladesh’s economy but it also contributed to a 10% rise in female labor force participation in the earlier 2000s.

Another example of how GVCs progress developing economies is in the global technology sector. For example, television designs come from Japan. Input pieces like semiconductors and processors come from South Korea or China. Meanwhile, the entire televisions receive assembly in China. They are exported throughout the world and the participating countries in a chain profit.

The Impact of GVCs

GVCs are evidently important and effective drivers of socio-economic growth for all countries, especially developing countries. They empower people by providing them with jobs and ways to service their abilities. They also allow for nations to take a strong stance in the global economy, encouraging diplomatic relations between countries.

These chains are a means for global growth, shared prosperity and allyship. There is always room for improvement, like finding a balance between importation and exportation. However, nations have already accomplished a lot already. As time passes, countries will hopefully see value in strengthening ties with the surrounding world through GVCs.

– Sarah Uddin
Photo: Flickr