Development Unchained: Trade and Industrialization in the Era of International Production

AuthorRichard Kozul‐Wright,Piergiuseppe Fortunato
DOIhttp://doi.org/10.1111/1758-5899.12601
Published date01 February 2019
Date01 February 2019
Development Unchained: Trade and
Industrialization in the Era of International
Production
Richard Kozul-Wright and Piergiuseppe Fortunato
UNCTAD
Abstract
Following a period of strong growth across all developing regions during the f‌irst decade of the millennium and a rapid
rebound from the 2008 f‌inancial crisis, a combination of falling commodity prices, increasing f‌inancial market volatility and
weak global demand has negatively affected growth performance in recent years. This growth slowdown has exposed the
absence of structural transformation in many developing countries even under robust growth conditions. As a result, increasing
attention has turned to the trade and industrialization opportunities offered by participation in global value chains (GVCs). How-
ever, while the evidence suggests a positive association between participation in GVCs and increased exports and inward FDI
f‌lows, evidence on their supporting structural transformation is weak. This paper discusses strategic approaches to participation
in GVCs as part of a broader development agenda. In particular, it focuses on the opportunities offered by regional value chains
(RVCs) and South-South cooperation and examines the role of industrial policy, with reference to the case of Southern Africa.
Policy Implications
Targeting the growth of export-oriented manufactures or increasing participation in GVCs offers neither automatic nor
straightforward pathways to industrialization. It is the type of participation in GVCs, the tasks that can be acquired and
the linkages across these tasks, that matter.
Developing economies need to f‌ind the right mixture of (i) effective public agencies able to bargain with footloose f‌irms
and (ii) support measures to build the clusters and linkages leading to industrial diversif‌ication.
Industrial policy is critical to ensuring that mixture but its effectiveness depends on complementary macroeconomic, trade
and technology policies.
It is of critical importance to leverage strategic links between production for GVCs or RVCs and domestic demand; for
example, adopting industrial policies towards priority export sectors that strategically link policy incentives that push for
exporting along with measures to expand the domestic market.
For a brief period from the start of the new millennium, the
combined inf‌luence of a great moderationin the macroe-
conomic environment (Bernanke, 2004) and a strong growth
recovery from the dot.com crash, reinforced support for the
promise, long held by supporters of hyperglobalization, of a
new international economic order. Developing countries
appeared to be the big winners in this new environment
leading to much talk of a great convergence(Wolf, 2011).
Thanks to a combination of rising commodity prices,
increased capital f‌lows and strong export demand, growth
across all the developing regions picked up sharply, in some
cases reaching historic highs (Table 1). These economies
also showed considerable resilience in the face of f‌inancial
shocks that followed the sub-prime meltdown and subse-
quent economic turmoil of 200809. As advanced countries
struggled to f‌ind economic traction, the idea that emerging
economies had decoupledfrom the travails of the
advanced economies gained an attentive audience. This has
proved short-lived.
The weak recovery in the advanced economies has since
given way to worries about secular stagnation, marked by
low investment rates, a productivity slowdown and height-
ened policy uncertainty. In its wake, growth in many devel-
oping economies has suffered knock-on effects with some
countries entering recession in 2016. Moreover, the slow-
down has raised fears that debts accumulated over the pre-
vious decade are becoming unsustainable along with a
growing realization that, despite their strong growth perfor-
mance, many developing economies had failed to undergo
the kind of structural transformation that could underpin
sustained growth in to the future. Against this more chal-
lenging background, hopes have been placed in the trade
and industrialization opportunities offered by global value
chains (GVCs) coordinated by multinational enterprises
(MNEs) through networks of aff‌iliates, contractual partners
or armslength suppliers (Dollar et al., 2017).
GVCs have been around for centuries (Gereff‌iet al., 2001),
but began to play a more visible role in the late
Global Policy (2019) 10:1 doi: 10.1111/1758-5899.12601 ©2018 University of Durham and John Wiley & Sons, Ltd.
Global Policy Volume 10 . Issue 1 . February 2019 29
Research Article

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