Development Unchained: Trade and Industrialization in the Era of International Production

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Following a period of strong growth across all developing regions during the first decade of the millennium and a rapid rebound from the 2008 financial crisis, a combination of falling commodity prices, increasing financial market volatility and weak global demand has negatively affected growth performance in recent years. This growth slowdown has exposed the absence of structural transformation in many developing countries even under robust growth conditions. As a result, increasing attention has turned to the trade and industrialization opportunities offered by participation in global value chains (GVCs). However, while the evidence suggests a positive association between participation in GVCs and increased exports and inward FDI flows, evidence on their supporting structural transformation is weak. This paper discusses strategic approaches to participation in GVCs as part of a broader development agenda. In particular, it focuses on the opportunities offered by regional value chains (RVCs) and South‐South cooperation and examines the role of industrial policy, with reference to the case of Southern Africa.

Policy Implications 

  • Targeting the growth of export‐oriented manufactures or increasing participation in GVCs offers neither automatic nor straightforward pathways to industrialization. It is the type of participation in GVCs, the tasks that can be acquired and the linkages across these tasks, that matter.
  • Developing economies need to find the right mixture of (i) effective public agencies able to bargain with footloose firms and (ii) support measures to build the clusters and linkages leading to industrial diversification.
  • Industrial policy is critical to ensuring that mixture but its effectiveness depends on complementary macroeconomic, trade and technology policies.
  • It is of critical importance to leverage strategic links between production for GVCs or RVCs and domestic demand; for example, adopting industrial policies towards priority export sectors that strategically link policy incentives that push for exporting along with measures to expand the domestic market.