Transnational corporations administer 80% of value chain in trade -
UNCTAD
Global trade is increasingly dominated by the complex and circuitous
routes followed by goods and services as they are upgraded into finished
products, a new UNCTAD report said. These 'global value chains' (GVCs),
orchestrated for the most part by transnational corporations (TNCs),
offer opportunities for poor countries to gain access to international
markets, just as they offer opportunities for statistical confusion to
economists.
The ever-more complicated webs of investment and trade, by which raw
materials extracted in one country may be exported to a second country
for processing, then exported again to a manufacturing plant in a third
country, which may then export to a fourth country for final
consumption, was the topic of the UNCTAD report entitled GVCs and
Development: Investment and Value Added Trade in the Global Economy.
The report said that the value chains administered in various ways by
TNCs now account for 80 percent of the $20 trillion in trade each year.
It also said that the relentless zigzagging across borders of goods and
services as they are upgraded means that some 28 percent of the value of
this trade, or about $ 5 trillion, is overstated through double
counting. The export value of copper ore extracted in one country, for
example, counts once as a contribution to that nation's gross domestic
product (GDP), but then is counted again, as many as several times, as
it progresses from raw to upgraded to finished goods as it is exported
after processing by other countries.
Among the key findings of the report are:
* Global investment and trade are thoroughly entwined in
international production networks. This is especially true of TNCs
investing in productive assets worldwide, as they manage trading inputs
and outputs in cross-border value chains that often are highly complex.
Such value chains (intra-firm or inter-firm, regional or global, and
commonly referred to as 'global value chains', or GVCs shaped by TNCs
account for some 80 per cent of global trade.
* GVCs are responsible for significant growing instances of double
counting in global trade figures.
The new data shows that some 28 percent of gross exports consists of
value added that is first imported by countries only to be incorporated
into products or services that are then exported again. Thus, some $ 5
trillion out of the $19 trillion of recorded global gross exports in
2010 was actually double-counted.
* GVCs make extensive use of services. While the share of services in
gross exports worldwide is only around 20 percent, almost half (46
percent) of value added in exports is contributed by services sector
activities, as most manufacturing exports require services (such as
engineering work, software development and marketing) for their
production. In fact, a significant part of the international production
networks of TNCs is geared towards providing services inputs, with more
than 60 peent of global foreign direct investment (FDI) channelled to
services activities. By comparison, 26 percent of FDI goes to
manufacturing and 7 percent to the primary goods sector. The picture is
similar for developed and developing economies.
* The majority of developing countries, including the poorest, are
increasingly participating in GVCs. The developing-country share in
global value-added trade increased from 20 percent in 1990 to 30 percent
in 2000, and is over 40 per cent today. Again, the role of TNCs is
critical, as countries with a higher presence of FDI relative to the
size of their economies tend to have a higher level of participation in
GVCs and a greater relative share in global value-added trade compared
to their share of global exports.
* GVC links in developing countries can play an important role in
economic growth. Domestic value-added, that is, an improved capacity of
an economy to produce a broader variety of goods, and goods of greater
complexity, resulting from GVC trade can be very significant relative to
the size of local economies. In developing economies, value-added trade
contributes some 28 percent to countries' GDPs on average, compared to
18 percent for developed economies.
There appears to be a positive correlationship between participation
in GVCs and GDP per capita growth rates. The economies with the
fastest-growing GVC participation have GDP per capita growth rates some
2 percentage points above average.
* There appears to be a number of GVC development paths available to
developing countries, including 'engaging' in GVCs, 'upgrading' along
GVCs, and 'leapfrogging' and 'competing' through GVCs. The best
development outcomes may result from an increase in GVC participation
and a move towards higher domestic value added in trade at the same
time. Countries that, over the past 20 years, have managed to increase
both their participation in GVCs and their domestic value added in
exports have experienced GDP per capita growth of 3.4 percent on
average, compared to 2.2 percent for countries that only increased their
participation in GVCs without "upgrading" their domestic value addition.
These findings have important policy implications. Describing the
situation, UNCTAD Secretary-General Supachai Panitchpakdi said, "Global
value chains are everywhere.
They show that investment and trade are two sides of the same coin.
Policy-makers have to take into account both sides when thinking about
economic growth and development."
GVCs can be an important way for developing countries to build their
productive capacities, including through technology dissemination and
skill building, the report contends. They can also open opportunities
for longer-term industrial upgrading. However, such potential benefits
of GVCs are not automatic. Governments need well-focused and mutually
reinforcing strategies for trade and investment, and for development
generally, that encourage upgrading of their productive capacities.
|