FEATURE ARTICLES

While advanced economies have traditionally dominated GVC exports, developing countries, led by China, have been capturing a bigger share over the last two decades. Greater participation in GVCs has the potential to play a pivotal role in the development paradigm of countries by providing them access to better skills, improved technology and a bigger market. The extent to which a country can benefit from participation in GVCs depends critically on its ability to move to higher value-added tasks within the value chain. There is no one-size-fits-all model for upgrading, and evidence suggests that countries have approached it in diverse ways. Notwithstanding the path of upgrading, infrastructure is decisive in increasing GVC participation, although infrastructure requirements will depend on the sector and value chain activity.

China has been increasing its share of GVC trade, particularly for intermediate goods, and is now a key manufacturing and trade node in the global economy (Figure 23). This chapter shows that the rise of China’s GVC participation is enabled by infrastructure development and foreign direct investment (FDI). China’s economy is in a stage of fundamental transformation with moving up the value-added ladder in many industries and a shift out of labor-intensive activities. The economic weight has shifted from north to south, and some inland provinces and cities have emerged as important hubs for high-technology industry and trade. Again, infrastructure has played a critical role in these shifts. China’s changing role in GVCs and its maturing as an economy will present opportunities for further regional development.

Together with economic growth, India has steadily expanded its share in global value added, exports and foreign direct investment since 1991 (Gupta and Blum, 2018). Growth has been stable, diversified and largely resilient to domestic and external shocks. Strong growth helped India pull millions out of poverty, with the poverty rate declining from 47.6 percent in the mid-1990s to below 11 percent in 2017 (World Bank, 2020b). While domestic demand remains large, exports have emerged as an important contributor to growth, accounting for nearly a quarter of India’s growth from 2000 to 2020. Exports enabled more competition, faster technological progress, spillovers and economies of scale (Agrawal, 2015). India’s share in global exports has more than tripled, from 0.5 percent in 1990 to more than 1.7 percent in 2018 (Figure 36).

Infrastructure is the material underpinning of integration into global trade and global value chain (GVC) participation. This chapter reassesses infrastructure investment in an analytical and policy framework that considers the nature and evolution of GVC participation. With proper GVC mapping and well-coordinated GVC-sensitive policy interventions, policy makers can ensure that infrastructure investments support GVC participation, positioning and, ultimately, upgrading.

The pandemic and its aftermath have compelled policy makers and investors to ask fundamental questions about GVCs. In the near-medium term, the key challenges are to make supply chains more resilient not only to shocks, including changes in trade policies, but also to extreme weather events and other consequences of climate change. Over the long term, the fundamental challenges are to ensure that GVC trade and related infrastructure are climate and environment friendly and to make GVC trade more inclusive for more countries. These challenges must be met, for they determine the sustainability of future GVCs.