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Thursday, September 05, 2013

'Global Supply Chains and the Changing Nature of International Trade'

Tim Taylor:

Global Supply Chains and the Changing Nature of International Trade: The World Investment Report 2013 from UNCTAD (the UN Conference on Trade and Development) is my go-to source for statistics about levels and trends of foreign direct investment. This year, Chapter IV offers an interesting additional essay on "Global Value Chains: Investment and Trade for Development. Here are a few points that jumped out at me.

The Preeminence of International Trade in Intermediate Goods 

The textbook story of international trade, in which an easily identifiable product made in one country like cars, computers, textiles, oil, wine or wheat is traded for a similar good in another country is no longer a fair representation of the majority of world trade. "About 60 per cent of global trade, which today amounts to more than $20 trillion, consists of trade in intermediate goods and services that are incorporated at various stages in the production process of goods and services for final consumption." ...
The Centrality of Transnational Corporations in International Trade

Global supply chains are typically coordinated by transnational corporations, often through making foreign direct investments in other countries (which is why it makes sense to have a discussion of global supply chains in a report focused on foreign direct investment). In fact, a relatively small number of transnational corporations are the organizations that coordinate and carry out the overwhelming majority of international trade, through some combination of owning foreign subsidiaries, contract manufacturing, franchising, or arms'-length buying and selling from local firms. ...
Global Value Chains and Economic Development

Clearly, global supply chains lead to prices for consumers in the importing countries that are lower than they would otherwise be--that's most of the reason that transnational corporations develop such chains. They also make profits for transnational corporations? But do the global supply chains help low- and middle-income countries develop? The answer depend several factors. ...

The overall pattern seems to be that participation in global value chains does in fact typically benefit economic growth and development, but there are a bunch of potentially difficult and important issues about treatment of workers, environmental effects, interactions with local institutions and the host government, and so on.

    Posted by on Thursday, September 5, 2013 at 12:24 AM in Economics, International Trade | Permalink  Comments (1)


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