Deeper reforms to boost growth in global value chains, says WB

Amid slowing global trade and growth, global value chains (GVCs) can still boost growth in developing countries, if deeper reforms are pursued to deepen participation and diversify products, according to a new report by the World Bank.

The report, titled “World Development Report 2020:Trading for Development in the Age of Global Value Chains” said GVCs have allowed the world’s poorest countries since the 1980s to climb the development ladder through specialized exports instead of building whole industries from scratch.

Today, GVCs account for nearly 50 percent of trade worldwide, but growth has plateaued since the global financial crisis of 2008. Present trade frictions have also created uncertainties over market access.

World Bank said, however, that developing countries like the Philippines can still maximize gains from GVCs if these can implement reforms that will boost participation and improve exports from mere commodities to more sophisticated products.

A global value chain essentially breaks up the process of goods across countries. Firms specialize in a specific task instead of producing the whole product.

Firms engaged in GVCs typically have durable relationships anchored on economic fundamentals, but World Bank notes national policies can enhance participation and broaden benefits.

The report noted that the Philippines is currently among countries that have transitioned into advanced manufacturing from limited manufacturing. Others are China, Czech Republic, Estonia, India, Lithuania, Poland, Portugal, Romania, Thailand, and Turkey.

The country, for instance, currently has rapidly expanding ICT and business service sectors that are ripe for expansion to higher value added service exports.

“GVCs can continue to boost growth, create better jobs, and reduce poverty — provided that developing countries undertake deeper reforms and industrial countries pursue open, predictable policies,” the report said.

Transitioning to more sophisticated participation in GVCs require key reforms in the national policies of developing countries.

These include adopting policies that support foreign direct investment, improving access to equity finance, and removing rigidities in labor policies.