Why countries need to participate in Global Value Chains GVCs

1. A Global Value Chain (GVC) as defined by the World Development Report, 2020: Trading for
Development in the Age of Global Value Chains is the series of stages in the production of a product
or service for sale to consumers. Each stage adds value, and at least two stages are in different
countries. GVC is basically the involvement of firms in different countries in the different stages of
production/manufacture of commodities. GVC can simply be put as the global division of labour
among firms. GVC has evolved over the years; expanding between 1990 and 2000s, stagnating after
the 2008 global financial crisis and gradually increased in the recent years. Countries in Western
Europe, North America and East Asia have driven GVC and countries have participated differently.
Countries with favourable trade conditions like, access to finance, availability of technical and
managerial skills, favourable labour costs, market access, trade infrastructure, basic IT connectivity,
good governance, political stability, intellectual property rights, advanced ICT rights, advanced
logistics, standardisation among others have greatly enjoyed the benefits of GVC. Regions of the
world that have intensively participated in GVCs have amongst other benefits experienced
Productivity Growth, job creation and increase in standard of living.
According to the World Development Report, 2020: Trading for Development in the Age of Global
Value Chains, hyper specialisation enhances efficiency, and durable firm-to-firm relationships
promote the diffusion of technology and access to capital and inputs along chains. The reports states
that in Ethiopia firms participating in GVCs are more than twice as productive as similar firms that
participate in standard trade. Firms in other developing countries also show significant gains in
productivity from GVC participation. A 1% increase in GVC participation is estimated to boost per
capita income by more than 1%, or much more than the 0.2% income gain from standard trade. The
biggest growth spurt typically comes when countries transition out of exporting commodities and
into exporting basic manufactured products like garments using imported inputs (e.g textiles) as has
happened in Bangladesh, Cambodia, and Vietnam.
Furthermore, GVC has enhanced productivity which has led to expansion of firms and so increase in
employment. Structural transformation less productive tedious activities to a more productive
skilled activities have been traced to GVCs in developing countries. Since GVC encourage gender
equality in all sectors, increase in employments has been recorded through the employment of more
women.
Again, the 2020 World Development Report states that in Mexico and Vietnam, for example, the
regions that saw more intensive GVC participation also saw a greater reduction in poverty which can
be attributed to the fact that poverty reduction can be attained through increase in employment
and productivity. Participating in specialised and more skilled part of production and trade, has
helped these countries to greatly reap the benefits of international trade and GVCs thus a reduction
in poverty.
GVCs have helped countries share endowments by participating in different stages of production of
commodities, increase international trade and global unions which all bring about productivity
growth, increase in job creation and higher living standards. The Global financial crisis in 2008 has
made countries learn that without GVC, international trade will face more restrictions as countries
will need little or nothing from others while engaging in GVC brings development and sustenance
through higher productivity, employment and per capita income.

2. Coming from a developing nation and I have been exposed to the benefits of firms who have fully
participated in the GVCs. The following is what I have learnt in the context of my community, Nigeria
(All references from The World Development Report, 2020).
1. To better enjoy the benefits of GVC participation, my community needs to adopt supportive
investment policy and improve the business climate. This means enabling foreign Direct
Investment.
2. Finance should be easily accessible in banks and at affordable rate to boast local firm’s
participation in GVCs
3. The government should reduce tariffs, basically form services to encourage the participation
of local firms.
4. ICT is a fast growing sector in my community, if this sector is encouraged and developed, it
will mean more benefits to even other firms participating in GVCs, a spill over effect.
5. Finally, institutions should be built to promote political stability, intellectual property rights
and pursue trade agreements.
To conclude, this MOOC has exposed me to the benefits of GVCs and why my community should
participate.