Global value chains (GVCs) matter for regional development – which is why anyone working to unlock investment at a regional level should read Harnessing Global Value Chains for regional development, the latest work from London School of Economics professor Riccardo Crescenzi and the International Growth Centre’s Oliver Harman.
The book is of particular interest at a time when efforts are apparent to promote the restructuring of global value chains resulting from the Covid-19 pandemic and the production and logistics bottlenecks that ensued.
In this light, understanding global value chains, how to engage with them, embed them in the local economic fabric and even actively contribute to them, provides readers with practical takeaways to seize some of the opportunities that restructuring GVCs may bring along.
The book provides a fresh perspective on regional development, one in which the emphasis for regions upgrading their economies falls on tasks, rather than sectors.
“The integrated nature of the global economy means we can no longer look at regional production through a sector-driven lens,” the authors write.
“That is, policy decision-makers should move away from focusing on how to shift from low- or high-value sectors focusing on the final good. Rather, the production of goods in the same sector can occur with very different technologically driven tasks. [...] It is the tasks that matter.”
The “smiling curve” offers a breakdown by value-add of the typical tasks in a value chain. Nowadays, pre-production tasks (R&D and design), as well as post-production tasks (marketing and services), have the highest value-add, while production itself and the logistics involved have a lower value-add profile. The authors argue that focusing on high value-add tasks will allow local authorities to “build on local strengths to form niche sectors, exploiting locational advantages and harnessing local skills”.
It is established that regional development hinges on moving towards high value-add tasks within existing sectors, rather than developing from scratch new, higher value-add sectors altogether. The authors provide a comprehensive framework for sub-national authorities to connect with GVCs and the main actors shaping them, particularly but not exclusively through FDI, as well as embed them in the local economic fabric to upgrade the local economy and reap higher benefits from the GVC connection.
While regions may be perceived as passive actors trying to leverage shifting GVCs they have little control over, the last part of the book makes a compelling case for the opposite to be true. Typically, local policy-makers promote a horizontal approach to GVC engagement, whereby they are at pains to create the best conditions for things such as human capital and infrastructure and therefore create a conducive local business environment.
The authors argue they should simultaneously take a more direct, “vertical” approach and work with other governments at the national and international levels with regards to GVC rules at the systemic level.
In particular, they call for regional leaders to be more involved in the negotiation of international free trade agreements (FTAs) and rules of origin requirements in three main ways: gaining leverage in the national policy framework; empowering regional lobbies in the negotiation of FTAs; and establishing regional certification to promote the region’s standards and practices to further engage with different actors in the value chain.
Overall, the book provides compelling reasons for authorities at the sub-national level to upgrade the ways they engage with GVCs and make the most of them from a regional development perspective. Given the state of flux of many value chains, it could not be more timely.
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This article first appeared in the December 2022/January 2023 print edition of fDi Intelligence. View a digital edition of the magazine here.