GVCs and development: policy formulation for economic and social upgrading

The use of the global value chain (GVC) analytical framework has broadened over time from being a research agenda to becoming an active policy tool. The geographic fragmentation now allows countries to engage in international trade in varying industries without first developing the full range of capabilities. A growing number of policymakers thus view GVC participation as a channel for employment creation and generation of export revenue, as well as a means of ‘leapfrogging’ and facilitating knowledge and technology transfer into increasingly higher-value and higher-technology fields. Engaging in these chains and capturing these benefits, however, is challenging. Many developing countries find themselves precariously competing on the basis of low-cost labour and fiscal incentives. A more sustainable path for GVC-led development can be built on specific and dynamic policies at the sectoral level to ensure economic success can contribute to broader economic and social objectives. These include proactive human capital development, adherence to international standards, attractive terms for investment and trade, support for local linkages, and appropriate infrastructure. This chapter will discuss the increased uptake of GVCs as a development tool, the policies needed at the national level to enter and upgrade in these chains, while also discussing broader economic and social development implications of engaging in these industries.