trading for development in the ageof global...

TRADING FOR DEVELOPMENT IN THE AGE OFGLOBAL VALUE CHAINS

A World Bank Group FlagshipReport

2 | W orld Development Report 2020

All countries par ticipate, but in different ways

All countries participate, but in different ways

GVC

DRIVERS OUTCOMES

Framework for GVC –led development

3 | World Development Report2020

GVCs’ share of global trade (%)Since 2008, GVCexpansion has slowed

35

40

45

50

55

301970 1980 1990 2000 2010 2015

Ove

rall

GVC

par

ticip

atio

n (%

tota

l tra

de)

37%

52%

48%


Why Care? Global Value Chains:

• Boosted incomes, created better jobs and reduced poverty

• Mixed impact on the environment and inequality

• Can continue to support development if developing countries undertake deeper reforms and industrial countries pursue open and predictable policies

GVC firms are more productivethan one -way traders or nontraders

EthiopiaExport andimport

Exportonly Importonly

Productivity difference between trading and nontrading firms (%)

0 0. 1 0. 2 0. 3 0 . 4 0. 5 0 . 6 0. 7 0. 8

VietnamExport and import

Exportonly

Importonly

Developing countriesExport and import

Exportonly

Importonly


Eventyear

0

20

40

60

2 4 6 8 10 12 14 16 18 20

Years after event

Limited manufacturing 57

Innovative activities

32

Advanced manufacturing

and services

48

Incomes grow most when countries break into simple manufacturing

Cumulated change in G DP per capita (%)


In Ethiopia, capital intensity is higher

Export andimport

Exportonly

Importonly

16012080400

Capital intensityDifference between trading firms and nontrading firms(%)

16012080400

EmploymentBefore-after difference for firms switching from not trading to trading(%)

Export andimport

Exportonly

Importonly


but so is employment growth

In Vietnam, poverty reductionis greater where GVC firms are present

Cha nge in ex penditure poverty ra te, 2004– 14 (%)

G V C firms in total employment(%)In Vietnam, poverty reduction is greater where GVCfirms are present


Technologies are changing production and distribution


0 2 4 6 8 10

Automotive

Rubber and plastics

Metal

Electronics

Machinery

C hemicals

Food products

O ther manufacturing

W ood, paper, and printing

Textiles

Mining

Education

Agriculture

C onstruction

Utilities

O ther nonmanufacturing

Increased adoption of industrial robots in the Northhas promoted imports from the South

Change in parts imports from developing countries (%)

More parts imported from South

Mor

e au

tom

atio

n in

the

Nor

th


What are the costs of participation?


Increasing GVC participation is associated with rising markups in developed countries but falling markups in developing countries

1.15

1.25

1.35

0.01

0.03

0.05

0.07

0.09

Aggr

egat

em

arku

p

Back

war

d G

VCpa

rtici

patio

n

1991 1995 1999 2003 2007 2011

Japan

G VC participation

G VC participation

Aggregate markup

Aggregate markup

0 . 0 8

0 . 0 9

0 . 1 0

0 . 1 1

0 . 1 2

0 . 1 3

1 . 0 0

1 . 1 0

1 . 2 0

1 . 3 0

Agg

rega

tem

arku

p

Forw

ard

GV

Cpa

rtici

patio

n

1 9 9 0 1 9 9 5 2 0 0 0 2 0 0 5 2 0 1 0 2 0 1 5

India


54

56

58

57

55

Lower-middle-incomecountries

40

44

43

41

39

1995 1999 2003 2007 20111995 1999 2003 2007 2011

GVCs have contributed to the declining labor sharewithin countries

Factors contributing to labor share decline (percentage points)

Total

W orld demandDomestic within-industry factors

G VCs

0−0. 5−1. 0−1. 5−2. 0−2. 5

High-income countries

Labor share over G DP (%)


GVCs favor women’s employment… but don’t break glass ceilings 0 1 2 3 4 5

Productionworkers

Administratorsor salesworkers

Female workers in total workers, relative to non-GVC firms (%)

Probability of female owners or managers, relative to non-GVC firms

−0. 20 −0. 16 −0. 12 −0. 08 −0. 04 0


Majority ownership

Top management

Raising tax revenue is challenging in today’s globalized world• Corporate income taxes have

declined by nearly 50 percent since 1990

• As a share of GDP, non-OECD countries lose the most from profit shifting

Revenue loss from profit shifting

208

439

0

100

200

300

400

500

non-OECD OECD

US$, billions

1.3

0.96

0.0

0.5

1.0

1.5

non-OECD OECD

% of GDP


Impact of globalization on tax structures: harder to tax winners and compensate losers

Corporate tax rates and personal labor income tax rates for top 1% and median workers in 65 economies over 1980-2007

GVCs can also be a mixed blessing for the environment

Disadvant ages• Excesstransport• Waste• Pollutionhaven

Advantages• Lead firms push

standardsupstream• Newenvironmental

goods


GVC

DRIVERS

GVC–led development: Drivers and policies for participation


Fundamentals need not determine destiny and transitions—policies matter20

Source: World Bank 2019a

No one size fits all — policy priorities evolve

21

Fundamentals need not determine destiny—policies matter

FUNDAMENTALSTo Limited Manufacturing To advanced manufacturing and

servicesTo innovative activities

Endowments

FDI: Investment policy and business climate

Access to finance and technology

Competitive labor costs: exchange rates, labor regulation Skills: Education, Technical / vocational training, managerial skills. Education, training, and skill increasingly important

Location

Trade infrastructure: investment in ports and transport infra / customs reform

Advanced logistics services: Multimodal, digitally-enabled transport infrastructure investment; liberalized transport services environment

Trade facilitation complemented by liberalization of transport and distribution services

Basic ICT connectivity: Infrastructure investment Advanced ICT services: Infrastructure, competitive markets (liberalized ICT services environment)

Market size

Access to inputs: Liberalized access to key inputs (selective tariffs / NTM reform)

Access to inputs: Broad-based liberalization – goods and services – including trade, investment, and domestic regulatory policy

Market access: Preferential trade agreements Market access: Deep trade agreements (incl investment and services)

Institutions

Governance: political stability Governance: policy predictability Deepen trade cooperation and commitments

Legal: contract enforcement Legal: contract enforcement + IPR protection

Innovation: basic standards regime Innovation: innovation ecosystem (R&D policy, industry-academia links, etc)

Creating an environment for continuous innovation

R&D capacity and IPR protection

Trade facilitation and transport

liberalization

Skill development: technical and managerial

No one size fits all — policy priorities evolve

Facilitating GVC participation: standardsHigher quality standards help

Certification has had long lasting effects on quality in Mali’s cotton sector

97.84

55.91

82.88

32.2

0

20

40

60

80

100

2007, 3 years after the qualitycertification program

2014, ten years after the beginninof the certification program, 6 yea

after its endAv

erag

e %

of "

prem

ium

qua

lity"

cot

ton

certified coops non certified coops

14.96 percentage points difference;7.9 pp attributable to Fairtrade quality certification

23.71 pp difference;8.75 pp attributable to Fairtrade quality certification


Facilitating GVC participation: linkages• In undertaking proactive (industrial)

policies minimize use of “traditional” instruments (subsidies, local content requirements)

• Focus instead on promoting domestic supply chain linkages and FDI spillovers

In Bangladesh, local suppliers grew as FDI grew from 1985 to 2003

0

2

4

6

8

10

12

1985 1990 1995 2000 2003

Num

ber o

f firm

sLocal intermediate input suppliers FDI firms in garment industry


Facilitating GVC participation: Drivers for successful implementation of special economic zones

Hawassa Industrial Park (Ethiopia) G arri Free Zone (Sudan)

Legal and regulatory framework

Government support

Zone-level governance

Industrial infrastructure

Location and connectivity

Human resources ~

Market demand ~


GVC

OUTCOMES

GVC–led development: Policies for benefitting from GVCs


Policies can help ensure benefits are shared and sustained

• Expand adjustment assistance

• Support active labor market programs to assist with retraining and job search

• Avoid rigid labor market regulation

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Mex

ico

Uni

ted

Stat

es

Japa

n

Isra

el

Chile

Latv

ia

Uni

ted

King

dom

Slov

enia

Aust

ralia

Cana

da

Slov

ak R

epub

lic

New

Zea

land

Esto

nia

Czec

h Re

publ

ic

Sout

h Ko

rea

Pola

nd

Port

ugal

Irela

nd

Ital

y

Nor

way

Spai

n

Swit

zerla

nd

Germ

any

Net

herla

nds

Belg

ium

Aust

ria

Luxe

mbo

urg

Hung

ary

Finl

and

Fran

ce

Swed

en

Denm

ark

Active Spending

Total Spending

Spending on total and active labor market policies as a percentage of GDP, 2016

Work ing with firms improves w orking conditions

Average non-compliance rates, all firms(%)

W orking conditions improved in apparel sector firms participating in the ILO -IFC Better W ork Vietnam program

5

10

15

20

2010 2014 2018


Average non-compliance rates, by years of firms participationin program (%)

0

5

10

15

20

1 2 3 4 5 6 7 8No. of years

2017 : New policy

implementation started.

2015 : New policy of public disclosure of firm

that failed to meet key labor standards

announced.

0

The threat to rules-based trade may be a historical inevitability

28

0

0.1

0.2

0.3

0.4

0.5

0.6Sh

are

of W

orld

exp

orts

USA UK China

UK: first concerns about German, US catch up

UK: departs from MFN

UK: confident, chooses openness and MFNPax-Britannica

US: confident, chooses openness and MFNPax-Americana

US: first concerns about Japan catch up

US: departs from MFN?

Pax-Sinica?

Shifts in trade shares and changes in policy stance

The UK and US Share of World Trade, 1800-2016

Deepen traditional trade cooperation

Reconsider special and differential

treatment

Combat tariff escalation

Reduce tariff and nontariff barriers,

especially in agriculture and services (especially

air and maritime)

Stronger rules on subsidies and SOEs


Look beyond trade to keep trade open and beneficial

Tax es

Interna tiona lda ta flows

Competition

12 3

Environment


How the proposed approach to regulation is different

Import liberalization

Exporter regulatory commitments(govt. or pvt.) in return for

Import policy

Reciprocal Liberalization

Import policy

Regulation Regulation

Regulatory cooperation

Harmonization, MRAs, equivalence

Country 1 Country 2

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