Global and regional value chains (GVCs) are an important way of organizing production, trade, and investment in a wide variety of sectors. The term “value chain” refers to the full range of processes involved in the design, production, and distribution of a final product. It stretches from far upstream activities like research and developmen, to downstream activities such as assembly, distribution, marketing, and after sales service.
Developing countries can benefit through income and employment effects, even if they specialize in low value added activities, such as assembly. However, concerns have been expressed that GVCs run the risk of locking countries into those activities, and not promoting industrial or social upgrading over time. Clearly, the challenge of moving up a value chain into higher value added activities, which typically have important economic spillovers, looms large for many developing countries.
This paper does not seek to resolve the ongoing debate over the development merits of GVCs, either generally or in terms of their specific effects in a particular country or region. Instead, it starts from the position that GVCs can, under the right circumstances—including the presence of appropriate complementary policies—offer important economic and development benefits to developing countries.