Global Value Chains: What are the Benefits and Why Do Countries Participate?

32 Pages Posted: 13 Feb 2019

See all articles by Faezeh Raei

Faezeh Raei

International Monetary Fund (IMF)

Anna Ignatenko

University of California, Davis

Borislava Mircheva

International Monetary Fund (IMF)

Date Written: January 2019

Abstract

Over the last two decades, world trade and production have become increasingly organized around global value chains (GVC). Recent theoretical work has shown that countries can benefit from participation in GVCs through multiple channels. However, little is known empirically about the economic importance of supply chains. We use the Eora MRIO database to compute different measures of GVC participation for 189 countries and illustrate global patterns of supply chains as well as their evolution over time in order to contribute to this topic. We find that GVC-related trade, rather than conventional trade, has a positive impact on income per capita and productivity, however there is large heterogeneity and the gains appear more signifcant for upper-middle and high-income countries. We document that 'moving up' to more high-tech sectors while participating in major supply chains does take place but is not universal, suggesting other factors matter. We confirm the findings of the standard gravity literature for GVC trade; highlighting the key role of institutional features such as contract enforcement and the quality of infrastructure as determinants of GVC participation.

Keywords: Economic integration, Trade, global value chains, gains from trade, Country and Industry Studies of Trade

JEL Classification: F14, F15, F23, L22

Suggested Citation

Raei, Faezeh and Ignatenko, Anna and Mircheva, Borislava, Global Value Chains: What are the Benefits and Why Do Countries Participate? (January 2019). IMF Working Paper No. 19/18. Available at SSRN: https://ssrn.com/abstract=3333741

Faezeh Raei (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Anna Ignatenko

University of California, Davis ( email )

One Shields Avenue
Davis, CA 95616
United States

Borislava Mircheva

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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