Developing countries have generally only reached limited manufacturing stages in global value chains (GVCs) due to characteristics associated with developing economies like inequality, poverty, unemployment, low skills, unstable economies, and poor infrastructure. These "weaknesses" are directly related to the key drivers of GVC participation like factor endowments, market size, and institutional quality. To participate in more sophisticated GVC stages, developing countries need to reduce inequality problems to promote innovation, and attract foreign direct investment by improving business environment factors like political stability, legal systems, infrastructure, and skilled labor. While not ideal, developing countries can also focus on exploiting natural resources and labor to participate in early GVC stages in the short term.

1. How can developing countries
participate of more sophisticated
stages of GVC´s?

2. Global value
chains

3. What are GVC´s?
A result of globalization according to many people or the first
steps of globalization according to others. GVC´s where boosted
by machinery, electronics and transportation and saw their
biggest growth begin in 1990 being around 52% between 1990
and 2008, year after it stagnated up to this date.
They are - at their core - the division of labor beyond the physical
frontiers of a country, and they characterize by:
• Hyper-specialization: where firms specialize in certain
tasks of the production chain.
• Firm to firm relationships: where relationships between
firms from different countries are stablished for either a
short or long period of time.

4. GVC´s are
indeed in our
everyday
life…
Source: 2020 World Development Report. World Bank

5. Why is participation
important?
Because of their hyper-specialization characteristics
global value chains allow countries to focus on activities
in which they have competitive advantage beneficiating
of scale economies. GVC´s also boost the flow of
technologies along countries as a result of their firm to
firm relationships.
These points allow countries to developed further than
what they could have achieved with normal trade
reducing – consequently – the poverty levels and
bettering their economy as a whole having more
possibilities of becoming a developed country.

6. Countries
participation

7. Different kinds
of participation
• Forward participation: A country exports to
another country for their production
• Backward participation: A country imports supplies
for their use in their production process to later
export the final goods
• Forward and backward participation: A mixture of
the previous ways of participation

8. In our modern world all countries participate, but
not at the same levels…
Source: 2020 World Development Report. World Bank

9. Reasons
behind this
divergence of
participation –
Drivers of
participation
• Factor endowments: Such as the
availability of natural resources,
abundance of low skilled labor
and the flows of foreign capital.
• Geography
• Market size
• Institutional quality

10. The experience
so far

11. As far as limited
manufacturing…
As it can be seen in the previously
showed map developing countries
that can mainly – with obvious
exceptions - be found in Latin
America, Asia and Africa – the
“South” – have generally reached in
recent years only as far as limited
manufacturing in terms of
participation.

12. Why not
further?
There are many reasons that could explain
why developing countries haven't been able
to reach further in global value chains, but
they all come to the same thing; they are
developing.
There are characteristics that can generally be
associated with developing countries:
inequality and social difficulties such as high
levels of poverty and unemployment, low
skilled labor, unstable economies, poor
infrastructure, bad legal and regulatory
support among many others.

13. A clear example of this are the 2019 Chilean manifestations due to inequality and social injustice such as
unemployment, bad working conditions, high transport prices, poor retirement plan, bad public health
system, low salaries and political corruption.

14. But this has been seen not only in Chile…
Source: Time magazine
Ecuador
Bolivia
Source: NBC News
Source: BBC News
Haití

15. These “weaknesses” that
developing countries have are
directly related to drivers of GVC
participation

16. What can be
done?

17. There are two main things that can be done:
Solve their social
inequality problems,
or at the very least
reduce them
Attract FDI

18. Innequality problems…
It is not an easy task for countries to reduce their inequality problems,
but it is necessary for it to be done to be able to participate of more
sophisticated stages.
If people are worried about low wages and all the other problems
mentioned before there is no room for innovation, and as we know
innovation is essential if countries want to participate of these stages of
global value chains.

19. As an example:
With a better educational system alongside better living
conditions people will be able to take advantage of their
abilities, maybe trough capacitation or entering higher
education, and as a result be capable of taking part of firms – or
even starting them – and fulfilling the intellectual necessities of
more sophisticated stages resulting in a higher participation and
consequently – possibly – a higher rate of development

20. Attract FDI…
Because of the international nature of firms, foreign direct investment
(FDI) is essential for being a part of more sophisticated stages of GVC´s.
That is because of these investments are where technology and
innovation originate from and if a firm invests in a country the chances
of adding more value to their exports increases.
If a country has access to a great level of FDI it will be able to take part
beyond the supplying of natural resources in GVC´s.

21. How can
developing
countries
attract FDI?
Mainly by creating a good business
environment, some subdivisions for this
objective are:
• Having politic stability and security
• Creating a legal and regulatory environment
that leads to business
• Having a big domestic market
• Macroeconomic stability
• Highly skilled labor
• Good infrastructure

22. Many of these points can be achieved by
themselves, but there is something that must not be
overlooked; trough the bettering of social equality
an important handful of these can be achieved.
The rise of manifestations worsens the politic of
developing countries – one that is already very
delicate in many of them -, these same inequalities
generate in the people an aversion against
globalization and GVC consequently reducing their
domestic market and the acceptance of the
entrance of international firms and therefore FDI.
As it was shown before the bettering of public
education would allow the availability of high skilled
labor. And the reduction of these “weaknesses”
would allow countries to shift their efforts to other
important topics such as the improvement of the
infrastructure and the facilitation of processes.

23. It is then, that both heavily
intertwined with each other,
being necessary to not
overlooked any of them

24. But there are “simpler” ways to participate…
Maybe not all countries want to take part of more sophisticated stages but do want to
take greater part in GVC´s.
Not everything is bad, developing countries do have great advantages that should be
exploited. A characteristic that most of developing countries share is abundance;
abundance of natural resources and labor.
With these two things countries can take part of the early stages of GVC´s and if policies
are implemented in the right way, they can become critical players in these stages,
being able to compensate the lack of innovation 'originated benefits with abundance
'originated benefits acquiring the boost necessary to reach higher levels of
development and – eventually – take part of more sophisticated stages

25. It must be noted though
that while this is a
possibility is not the best
option because it might
lead to irremediable
environmental and social
damage

26. GVC´s are the present and the future of trade so countries
should look at them as a new possibility for growth…