UNCTAD UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT Advance unedited version G LOBAL V ALUE ALUE C HAIN s and Development GLOBALVALUE CHAINS AND Development INVESTMENT AND VALUE ADDED TRADE IN THE GLOBAL ECONOMY A preliminary analysis UNITED NATIONS Join us at: www.unctad.org/diae ii Global Value Chains and Development Editorial Note The Division on Investment and Enterprise of UNCTAD is a global centre of excellence dealing with issues related to investment and enterprise development in the United Nations System. It builds on three-and-a-half decades of experience and international expertise in research and policy analysis, fosters intergovernmental consensus-building, and provides technical assistance to developing countries. The terms country/economy as used in this Report also refer, as appropriate, to territories or areas; the designations employed and the presentation of the material do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. In addition, the designations of country groups are intended solely for statistical or analytical convenience and do not necessarily express a judgment about the stage of development reached by a particular country or area in the development process. The major country groupings used in this Report follow the classification of the United Nations Statistical Office. These are: Developed countries: the member countries of the OECD (other than Chile, Mexico, the Republic of Korea and Turkey), plus the new European Union member countries which are not OECD members (Bulgaria, Cyprus, Latvia, Lithuania, Malta and Romania), plus Andorra, Bermuda, Liechtenstein, Monaco and San Marino. Transition economies: South-East Europe and the Commonwealth of Independent States. Developing economies: in general all economies not specified above. For statistical purposes, the data for China do not include those for Hong Kong Special Administrative Region (Hong Kong SAR), Macao Special Administrative Region (Macao SAR) and Taiwan Province of China. Reference to companies and their activities should not be construed as an endorsement by UNCTAD of those companies or their activities. The boundaries and names shown and designations used on the maps presented in this publication do not imply official endorsement or acceptance by the United Nations. The following symbols have been used in the tables: • Two dots (..) indicate that data are not available or are not separately reported. Rows in tables have been omitted in those cases where no data are available for any of the elements in the row. • A dash (–) indicates that the item is equal to zero or its value is negligible. • A blank in a table indicates that the item is not applicable, unless otherwise indicated. • A slash (/) between dates representing years, e.g., 1994/95, indicates a financial year. • Use of a dash (–) between dates representing years, e.g. 1994–1995, signifies the full period involved, including the beginning and end years. • Reference to “dollars” ($) means United States dollars, unless otherwise indicated. • Annual rates of growth or change, unless otherwise stated, refer to annual compound rates. Details and percentages in tables do not necessarily add to totals because of rounding. The material contained in this study may be freely quoted with appropriate acknowledgement. UNITED NATIONS PUBLICATION UNCTAD/DIAE/2013/1 © Copyright United Nations 2013 All rights reserved iii Executive Summary UNCTAD’s Division on Investment and Enterprise manufacturing and 7% in the primary sector). builds on efforts in the international community to This picture is similar in both developed and map the distribution of value added in global trade, developing economies. launching a GVC dataset that expands coverage • The majority of developing countries, including to include almost all countries, including developing the poorest, are increasingly participating in economies, and a broad range of industries and GVCs. The developing country share in global activities of relevance to them. The UNCTAD-Eora value added trade increased from 20% in 1990 GVC Database – part of UNCTAD’s FDI-TNCs-GVC to 30% in 2000 to over 40% today. Again, the Information System – provides new perspectives on role of TNCs is instrumental, as countries with trade links between economies, on the distribution a higher presence of FDI relative to the size of value added, income and employment resulting of their economies tend to have a higher level from trade, on the investment-trade nexus and on of participation in GVCs and a greater relative how transnational corporations (TNCs), through share in global value added trade compared to equity and contractual modes, shape patterns of their share in global exports. value added trade. • GVC links in developing countries can play an Highlights of the findings presented in this report: important role in economic growth. Domestic • Global investment and trade are inextricably value added created from GVC trade can intertwined through the international be very significant relative to the size of production networks of firms investing in local economies. In developing countries, productive assets worldwide and trading inputs for example, value added trade contributes and outputs in cross-border value chains of some 28% to countries’ GDP on average, as various degrees of complexity. Such value compared with 18% for developed countries. chains (intra-firm or inter-firm, regional or Furthermore, there appears to be a positive global in nature, and commonly referred to as correlation between participation in GVCs Global Value Chains or GVCs) shaped by TNCs and GDP per capita growth rates. Economies account for some 80% of global trade. with the fastest growing GVC participation have GDP per capita growth rates some 2 • GVCs are responsible for the growing percentage points above the average. significance of “double counting” in global trade figures. The new data shows that some • There appear to be a number of distinct GVC 28% of gross exports consist of value added development paths for developing countries, that is first imported by countries only to be including “engaging” in GVCs, “upgrading” incorporated in products or services that are along GVCs, “leapfrogging” and “competing” then exported again. Thus some $5 trillion out via GVCs. The best development outcome of the $19 trillion in global gross exports (in may result from increasing GVC participation 2010 figures) is actually double counted. and upgrading along GVCs at the same time. Countries that, over the last 20 years, • GVCs make extensive use of services. managed to grow both their participation While the share of services in gross exports in GVCs and their domestic value added worldwide is only around 20%, almost half in exports experienced GDP per capita (46%) of value added inputs to exports is growth of 3.4% on average, compared to contributed by service-sector activities, as 2.2% for countries that only increased their most manufacturing exports require services participation in GVCs without “upgrading” for their production. In fact, a significant part of their domestic value addition. the international production networks of TNCs are geared towards providing services inputs, These findings will have some important policy as indicated by the fact that more than 60% of implications. For example, GVCs can be an global FDI stock is in services activities (26% in important avenue for developing countries to build iv Global Value Chains and Development productive capacity, including through technology (e.g. market access, employment generation, dissemination and skill building, opening up productive capacity building), as well as the risks opportunities for longer-term industrial upgrading. involved for developing countries (e.g. social and However, such potential benefits of GVCs are environmental sustainability impact, the risk of not automatic. Policies matter, including a set remaining locked into low value adding activities, of coherent and mutually reinforcing trade and footlooseness of activities). investment policies, as well as the right overall The balance of opportunities and risks associated development strategies. with GVCs makes a well-informed policy debate UNCTAD intends to build on the preliminary on their development impact of paramount analyses of the new data presented in this launch importance. UNCTAD hopes that its GVC report in its forthcoming World Investment Report Database will stimulate and contribute to such 2013, which will examine the mechanisms through debate by providing new insights into the evolving which GVCs can contribute to development nature of globalized production networks. v Acknowledgements The UNCTAD-Eora GVC Database launch report Powers and Pierre Sauvé. Comments were also was prepared by a team led by James Zhan received from UNCTAD colleagues, including Marco and including Richard Bolwijn, Bruno Casella Fugazza, Alessandro Nicita, Victor Ognivtsev, Miho and Masataka Fujita. Carlo Altomonte served as Shirotori and Guillermo Valles. principal economic advisor, and Keiichiro Kanemoto Research and statistical assistance was provided and Daniel Moran as principal data consultants. by Bradley Boicourt, Lizanne Martinez and Davide At various stages of preparation the team benefited Rigo. The document was typeset by Teresita from comments