Global Value Chains Continued to Expand in 2022, Despite Risks

New Delhi: The growing share of foreign inputs in global exports has indicated that Global Value Chains (GVCs) continued to expand in 2022, though there are risks from the dependence on a small number of countries for certain products, according to a new report.

GVCs Offer Opportunities for Developing Economies

The report, titled "GVC Development Report 2023: Resilient and Sustainable GVCs in Turbulent Times," was jointly published by the Asian Development Bank, the Institute of Developing Economies -- Japan External Trade Organisation, Research Institute for Global Value Chains at the University of International Business and Economics (UIBE) Beijing, and the World Trade Organisation (WTO).

The report states that GVCs can lead to positive outcomes for firms in developing economies by improving productivity and alleviating constraints, and can result in higher wages and better working conditions.

Risks to GVCs

However, the report also flags increasing risks from the dependence on a small number of economies for certain products and highlights the vulnerability of GVCs to rising trade tensions and global crises.

For example, the report found that foreign inputs comprised 28 per cent of global merchandise exports last year, a record level. Moreover, GVC participation rates of almost all economies were higher in 2022 compared to their pre-pandemic levels in 2018.

Making GVCs More Inclusive

The report also suggests that policies for making GVCs more inclusive should focus on facilitating entry into GVCs and increasing positive spillovers into the domestic economy.

This could include measures such as reducing trade barriers, providing financial and technical assistance to small and medium-sized enterprises (SMEs), and promoting responsible business practices.

The expansion of GVCs offers opportunities for firms in developing economies to improve productivity, alleviate constraints, and access higher wages and better working conditions. However, there are also risks associated with GVCs, such as the dependence on a small number of economies for certain products and the vulnerability to rising trade tensions and global crises. Therefore, it is important to make GVCs more inclusive and resilient to ensure that they continue to benefit firms and workers in developing economies.