Global value chains (GVCs) have expanded international trade and benefited developing countries like India. GVCs involve breaking production processes across borders with firms specializing in specific tasks. This allows for greater efficiency and knowledge sharing. While GVC expansion has slowed since 2008 due to lower growth and lack of trade liberalization, GVCs still support greater productivity, incomes, employment, and poverty reduction compared to traditional trade models. India has participated in GVCs in sectors like software, pharmaceuticals, and automobiles. However, challenges like protectionism, trade facilitation issues, and labor regulations could limit India's future GVC integration.

1. Assignment of Managerial Economics
Professor Name -: Bharat Dhongade
Student Name -: Bhawana Upadhayay
College Name -: MET
Roll No -: 13
Assignment 1

2. Name of the Topic -: Global Value Chain and its Role
in International Trade
The growth of international trade and the expansion o
global value chains (GVCs) during the last three
decades have had remarkable effects on development
.Incomes have risen, productivity has increased
manifold. Developing Countries, like India, have
benefited in numerous ways. Growth process in these
countries has got momentum on the one hand, while
on the other they have been able to reduce poverty
has broken in many countries because of rise in
international trade. The fragmentation of production
and knowledge transfer inherent in GVCs are in no
small part responsible for these advances. The
Concepts of division of labour and labour
specialization, which have roots in the writings of
Plato, William Petty, David Hume, Adam Smith,
Immanuel Kant, Karl Marks and many others, have got
new name and dimensions in global trade under the
process of ‘Global Value Chain’. Hyper specialization by
firms at different Stages of value chains enhances
efficiency and productivity, and durable firm-to-firm
relationships foster technology transfer and access to

3. capital and inputs along value chains. GVCs account for
around half of world trade today.
What is a Global Value Chain (GVC)?
A global value chain breaks up the production process
across countries. Firms specialize in a specific task and
do not produce the whole product. A global value
chain (GVC) 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 stage in the production of
a product or services for sale to consumers. For
example, a bike assembled in Finland with parts from
Italy, Japan, and Malaysia and exported to the Arab
Republic of Egyt is a GVC. By this definition, a country,
sector, or firm participates in a GVC it engages in (at
least) one stage in a GVC. Regardless of the shape of
GVCs, the possibility of fragmenting production across
borders gives rise to a finer international ‘division of
labour’ and greater gains from ‘specialization’. GVCs
allow resources to flow to their most productive use,
not only across countries and sectors, but also within
sectors across stages of production. As a result, GVCs
magnify the growth, employment, and distributional
impacts of standard trade. Unlike traditional
international trade whose transactions involve only

4. two countries (an exporting country and an importing
country)’ GVC trade crosses borders multiple times.
Forms of GVCs
Global Value Chains are of two types:
1. Backward GVC participation: Importing inputs to
produce goods or Services that are exported.
2. Forward GVC participation: Exporting domestically
produced Inputs to partners for the production of
goods or services that they export.
Drivers of Participation
Factor endowments: Low-skilled labour and
foreign capital are central to backward
participation in GVCs at early stages. An

5. abundance of natural resources drives forward
GVC integration. Foreign capital whether can
enhance host efficiency-seeking or resource-
seeking, country integration in GVCs.
Market size: Small countries are more dependent
on imported inputs and foreign markets. Trade
liberalization can expand effective market size and
pro-mote participation in GVCs.
Geography: Overcoming remoteness by improving
connectivity can promote GVC participation. Trade
in parts and components- within international
production networks is highly sensitive to logistics
performance and uncertainty in bilateral
international transport times.
Institutional quality: Entering deep preferential
trade agreements (PTAs) can enhance institutional
quality and increase GVC participation. Deep PTAs
cover legal and regulatory frameworks, harmonize
customs procedures, and set rules on intellectual
property rights.
New Face of Global Trade
 Global Value Chains (GVCs) expanded in the 1990s
and 2000s, but that expansion has slowed since

6. the financial crisis of 2008. Reasons of slow growth
of GVCs are:
* Lower global economic growth and investment.
* Lack of major liberalization initiatives in recent years.
 GVCs matter for development.
 GVC trade exhibits two features that distinguish it
from traditional trade :
* Hyper specialization
* Durable firm-to-firm relationships.
These features allow firms to raise productivity and
income, rendering GVC trade more powerful than
traditional trade in supporting growth and poverty
reduction.
All countries participate in GVCs but in different ways:
* Developed and large emerging economies participate
in complex GVCs producing advanced and innovative
manufactures and services.
* By contrast, many countries in Africa, Central Asia,
and Latin America still produce commodities for
further processing in other countries or engage in
limited manufacturing.

7.  The intensification of GVCs was driven by a
handful of regions, sectors, and firms. GVCs grew
in the machinery, electronics, and transportation
sectors and in the regions specializing in those
sectors: East Asia, North America, and Western
Europe.
 Within countries, a few large trading firms
dominate GVC trade, supported by foreign direct
investment.
 More-complex value chains have stronger regional
linkages, although GVCs have expanded both
globally and regionally :
* GVCs in East Asia and Europe are more focused on
trade within the region.
* GVCs in North America depend somewhat more on
global partners.
* Elsewhere, GVC integration has been mostly global
and is primarily continuing in that direction.
 Advantages of GVCs
Hyper specialization enhances efficiency, and durable
firm-to-firm relationships promote the diffusion of
technology and access to capital and inputs along
chains.

8. Boost in Per-capita Income: A 1 per cent increase
in GVC participation is estimated to boost per
capita income by more than 1 per cent, or much
more than the 0·2 per cent income gain from
standard trade.
Export Diversification: The biggest growth spurt
typically comes with export diversification.
Employment Generation on Wider Scale: GVCs
deliver better jobs, but the relationship with
employment is complex. Firms in GVCs tend to be
more productive and capital-intensive than other
(especially non trading) firms, and so their
production is less job-intensive. However, the
enhanced productivity leads to an expansion in
firm output and thus to increases in firm
employment. As a result, GVCs are associated with
structural transformation in developing countries,
drawing people out of less productive activities
and into more productive manufacturing and
services activities.
 Empowerment of Women: Across a wide range of
countries, firms engaged in GVCs employ more
women than non-GVC firms. They contribute

9. therefore to the broader development benefits of
higher female employment.
: Because they boost income and employment growth,
participation in GVCs is associated with a reduction in
poverty. Trade in general reduces poverty primarily
through growth. Because gains in economic growth
from GVCs tend to be larger than from trade in final
products, poverty reduction from GVCs also turns out
to be greater than that from standard trade. In many
countries the regions that saw more intensive GVC
participation also saw a greater reduction in poverty.
Product Specialization: In principle, breaking up
complex products such as cars and computers
allows countries to specialize in simpler parts and
tasks, making it easier for those at an early stage
of development to participate in trade. But a
country’s ability to participate in GVCs is by no
means assured.
Implications of GVCs for India During the Era of
Globalization Under Rising Protectionism
The GVCs can greatly raise productivity, benefiting
both the investor and investee countries. GVCs create
more and better jobs, accelerate economic growth and

10. reduce poverty. Good outcomes depend on supporting
economic policies such as open markets, investor-
friendly regimes, predictable and stable taxes and
rules, and high-quality infrastructure. GVCs will locate
in countries with logistics and procedures that ensure
fast turnaround of goods and services. The world is
passing through a paradoxical situation of eagerness of
developing countries for a more open world on the one
hand while on the other some leading economies are
moving towards protectionism. WTO is losing its shine
because of hostile attitude of United States. Trade war
between the US and China has escalated. US
administration is at loggerheads with Iran. India has
emerged major FDI destination during the last three
decades. All the major multinational automobile
companies, mobile manufacturing companies, white
goods manufacturing companies, and computer
hardware companies have established units in India.
These companies are importing many components of
their products into India and are exporting the final
product. India has mixed bag of opportunities in GVC
regime. India has leapfrogged over the simple
manufacturing phase to sophisticated areas like
computer software, pharmaceuticals and autos. It is

11. part of GVCs in all three. All forms of globalization,
including GVCs, create losers as well as winners. In
principle, taxing the winners should compensate for
the losses of the losers, by providing retraining and
safety nets. In practice, taxing the winners has proved
difficult. India must reform its import and export
procedures, including goods and services tax (GST)
rules, ensuring quick paperwork and trade clearances.
It must focus on trade facilitation, and invest in world-
class ports, rail transport, air cargo and electricity. Land
acquisition difficulties and inflexible labour laws hinder
GVCs. Legal and tax disputes must be settled quickly,
instead of meandering through the courts for decades.
India has improved its ‘ease of doing business’ ranking
in Modi’s first term, but has a long way to go. India’s
ratio of trade in goods and services to GDP peaked at
56% in 2011, and fell to 43% in 2017. (It must be lower
today.) This share remains higher than in the US or
Europe. China and most other countries have followed
a similar downhill pattern. Yet, trade, and the GVCs
that spur it, remains extremely important.
Conclusion
GVCs can continue to boost growth, create better jobs,
and reduce poverty, provided that developing

12. countries undertake deeper reforms and industrial
countries pursue open, predictable policies.
Technological change is likely to be more of a boon
than a curse for trade and GVCs. The benefits of GVC
participation can be widely shared and sustained if all
countries enhance social and environmental
protection. The emergence of new products, new
technologies of production such as automation and 3D
printing, and new technologies of distribution such as
digital platforms is creating both opportunities and
risks. But the evidence so far suggests that on balance
these technologies are enhancing trade and GVCs.
Innovation is leading to the emergence of new traded
goods and services, which contributes to faster trade
growth. According to World Bank, in 2017, 65 per cent
of trade was in categories that did not exist in 1992.
Surprisingly, new production technologies are also
likely to boost trade. Automation does encourage
countries to use less labour-intensive methods and
reduces the demand for the labor-intensive products
of developing countries. However, the evidence on
reshoring is limited, and the evidence on automation
and 3D printing suggests that these technologies have
contributed to higher productivity and a larger scale of

13. production. As such, they have increased the demand
for imports of inputs from developing countries.
Similarly, digital platform firms are reducing the cost of
trade and making it easier for small firms to break out
of their local markets and sell both goods and services
to the world. But there are signs that the rising market
power of platform firms is affecting the distribution of
the gains from trade.