The growth of global value chains (GVCs) is slowing and countries adjust by speeding up customs and reducing border delays, according to the World Bank.
In its latest World Development Report 2020, titled Trading for Development in the Age of Global Value Chains, the World Bank said that while GVCs still account for nearly 50 percent of global trade, their growth have plateaued since the 2008 financial crisis.
The slowdown in the growth of GVCs was rooted in trade tensions that have recently created uncertainties in market access. This has caused firms to delay investment plans.
“Global value chains have played an important part in growth, by enabling firms in developing countries to make significant gains in productivity, and by helping them transition from commodity exports to basic manufacturing. In the age of global value chains, all countries have much to benefit by speeding up reforms that increase commerce and boost growth,” World Bank Group chief economist Pinelopi Koujianou Goldberg said.
GVCs, the World Bank said, promotes productivity and economic growth; reduces poverty; and delivers better jobs for citizens.
The World Bank estimated that a 1-percent increase in participation is estimated to boost per-capita income levels by more than 1 percent—about twice as much as standard trade.
In terms of poverty reduction, growth from GVCs are larger than from trade in final products. As such, their impact on poverty reduction is also larger.
Further, firms in GVCs draw people into more productive manufacturing and services activities and tend to employ more women, supporting structural transformation in developing countries.
“Countries need trade to develop, and an open, predictable environment benefits everyone. To ensure sustained social support for trade, policy-makers need to ensure that the benefits of global value chains are widely shared among a broad range of groups—especially the poor and women—and that the environment is protected,” Goldberg said.
Based on the study, the World Bank also said institutional quality matters in allowing countries to integrate into GVCs.
All of the top 25 “most politically unstable countries” between 2006 and 2015 do not participate in advanced GVCs, except for the Philippines and Thailand.
However, the World Bank report stated that countries are improving their integration in GVCs.
Countries like Vietnam reduced the average time to import by two days down to roughly three weeks between 2006 and 2015.
However, this improvement was still a week longer than the average import time in the Philippines or Thailand, which have been involved in manufacturing GVCs longer than Vietnam.
In terms of Internet connectivity, Vietnam improved to 43 percent in 2015 from only 17 percent in 2006. This is higher than the Philippines’s 27 percent and Thailand’s 25 percent.
This, the World Bank said, reflected these countries’ efforts to integrate into information and communication technology GVCs “not only in hardware but also in business services.”
The World Bank said its latest report marked its first trade-focused development report since the late 1980s.
It finds that GVCs have powered an economic transformation ever since, allowing the poorest countries to quickly climb the development ladder.
Such chains enable developing countries to specialize and grow wealthier without having to build whole industries from scratch.