Global Value Chains and Industrial Development

This chapter provides overview of the book. Considering the evolution of global value chains (GVCs), this book’s objectives are as follows: (1) GVC participation and influencing factors: To elucidate the methodologies used to analyze GVC participation and examine the factors influencing the participation of developing nations, especially the link between GVC participation and income levels. (2) GVC upgrading and influencing factors: To understand the methodologies for analyzing GVC upgrading and explore the elements affecting GVC enhancement in developing nations. This is particularly relevant for nations experiencing a surge in imported inputs due to weak industry supplier bases. (3) The role of connectivity in GVC dynamics: To delve into the evolution and present state of maritime and aviation connectivity and examine its repercussions on GVC involvement and the subsequent transformation of industrial frameworks.

This chapter investigates the dynamics of GVC participation in relation to trade. We initially present a method for analyzing GVC participation, which leverages international input–output data. The metrics covered in this chapter encompass both GVC backward and forward participation as well as GVC positional indicators. Insights from 2019 data reveal a non-linear correlation between GVC participation and income levels, highlighting a U-shaped trend between forward participation and real GDP per capita and an inverted U-shaped trend with backward participation. Detailed measures related to GVC participation, position, and trade-weighted distances are presented for eight global regions. The study suggests that specific industries hold distinct places in terms of GVC participation. This influences the overarching GVC engagement of the regions through their export configurations. Our econometric analysis revealed following findings. First, there is strong evidence supporting a U-shaped relationship between forward participation and GDP per capita. Second, an inverted U-shaped relationship was previously observed between backward participation and GDP per capita; however, this has been diminishing since the early 2000s. Third, maritime and aviation connectivity indirectly enhance GVC participation. Lastly, weighted degree centrality is posited as an effective metric for assessing a nation's connectivity within global maritime and aviation transport networks.

Unlike GVC participation, the methodology for GVC upgrading lacks a unified consensus. We categorize upgrading into three distinct types: functional, structural, and technological. Our empirical focus primarily lies on structural upgrading. We use the “flying geese” model as a reference to sequentially explain structural shifts that also influence the patterns of forward and backward participation. Our analysis reveals that the proportion of domestic value added (DVA) in exports, which is a benchmark for structural upgrading, has seen a downturn in certain regions. Nevertheless, the adverse effects on the share of DVA addition to exports are outweighed by the benefits of broader export expansion. The results of our econometric analysis can be summarized as follows. First, even after accounting for the three-dimensional fixed effects and traditional factors of GVC participation, two variables remain significant: domestic industrial capacity and the presence of an educated workforce. Second, an educated labor pool not only enhances the volume but also the share of DVA in exports. Lastly, the significance of an educated workforce becomes even more pronounced when structural upgrading is evaluated, especially concerning the share of DVA in exports within both the manufacturing and service sectors.

This chapter examines the evolution and present landscape of maritime and aviation connectivity by utilizing centrality metrics derived from Lloyd's List and the OAG Database. These calculated connectivity metrics shed light on how maritime and aviation linkages influence the extent of GVC involvement, as detailed in Chap. 2, and affect the subsequent advancement of industrial frameworks through GVC engagement, as outlined in Chap. 3. The in-depth analysis underscores the ascent of certain emerging economies juxtaposed with the relative descent of more advanced nations. Notably, the growth trajectory of maritime and aviation connections displays significant geographical disparities, mirroring the different pace of economic development across regions.

This chapter focuses on the technological complexity of exports within East Asia, particularly spotlighting middle-income nations in Southeast Asia that have grappled with stagnating economic growth. Our research findings underscore the necessity of enhancing the technological sophistication of exports to fuel steady economic expansion. The analysis delves into the domestic content of exports, segmenting exports across different tiers, since relying solely on the export proportion of cutting-edge products might not offer an accurate representation owing to the strides in vertical specialization. Thus, a discernible pattern emerges wherein the proportion of foreign content in exports tends to rise in tandem with the technological caliber of the exported goods. This trend is especially pronounced in Southeast Asian nations like Malaysia and Thailand. A granular breakdown of exports from sectors like semiconductors and pharmaceuticals reveals that such industries in Malaysia and Thailand predominantly feature substantial Asian content. Concurrently, there is a marked reliance on intermediary goods sourced chiefly from Northeast Asian territories.