‘Missing Value’ of Global Value Chains Presents Growth Opportunity

‘Missing Value’ of Global Value Chains Presents Growth Opportunity

MANILA, PHILIPPINES (16 November 2021) — Global value chains present significant growth opportunities for developing economies even in the wake of the coronavirus disease (COVID-19) pandemic, and their contribution to the world economy may be much larger than normally reported, according to a report released today.

Global value chains—the multicountry cross-border production networks that bring a product or service from conception to market—may be twice as large as commonly reported if the “missing value” of trade in intellectual property services is taken into account, according to the Global Value Chain Development Report 2021: Beyond Production.

With the expansion of trade in intellectual property services, global value chains have spread beyond manufacturing. This presents opportunities for more inclusive growth in developing economies, according to the report, released by the Asian Development Bank (ADB) in partnership with the Research Institute for Global Value Chains at the University of International Business and Economics, the World Trade Organization, the Institute of Developing Economies – Japan External Trade Organization, and the China Development Research Foundation. At the same time, border closings and mobility restrictions during the COVID-19 pandemic have exposed vulnerabilities in global value chains, contributing to product shortages and sparking discussions about “reshoring” production.

“This report breaks new ground by showing that the value added in global value chains is increasingly generated outside of manufacturing,” said ADB President Masatsugu Asakawa. “As we recover from COVID-19, our enhanced new knowledge of where value is created, and how it’s shared, requires us to reinvigorate value chains in ways that increase opportunities to participate in the global economy, especially for lower-income economies and small and medium-sized businesses.”

Exports of intellectual property services aren’t directly recorded as exported services in conventional trade statistics. These services include multinational corporations bringing brands, patents, intangible know-how, and marketing networks to their local country affiliates to spark new business opportunities. With low upfront capital needs and the declining cost of digital technology, service-led growth is an opportunity for lower- and middle-income countries that have low-cost labor but struggle to meet the capital-intensive requirements of manufacturing.

Services trade has been found to raise average earnings. This can especially benefit women, who take a higher share of employment in the sector. At the same time, the rising digital economy provides more channels at less costs for micro, small, and medium-sized enterprises to participate in global value chains.

Enabling growth in services trade requires policies aimed at limiting costs and barriers to entry, promoting investment in worker training, reducing the relative costs of schooling, and narrowing the digital divide through infrastructure investment and better access to technology.

While the COVID-19 pandemic has placed global value chains under significant strain, they are showing resilience and playing a lifesaving role in delivering protective equipment and vaccines, according to the Global Value Chain Development Report 2021. Innovative solutions such as e-commerce and remote work were scaled up in response to the pandemic, the report notes.

Beyond COVID-19, global value chains also face risks from geopolitical tensions and climate change. Surveys indicate that 90% of global value chains have been affected by the combined shocks of the pandemic and trade tensions between the People’s Republic of China and the United States.

These risks make a compelling case for boosting the resilience of global value chains, especially through digitalization and automation. Companies have responded with investments in resilience measures such as diversification, transparency, and digitalization. Reshoring, meanwhile, has not been widely observed as it comes at a hefty cost and fails to address most risks.

ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members—49 from the region.

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