A World Trade Organization for the 21st Century

A World Trade Organization for the 21st Century

The Asian Perspective

ADBI series on Asian Economic Integration and Cooperation

Edited by Richard Baldwin, Masahiro Kawai and Ganeshan Wignaraja

The global financial crisis exposed great shortcomings in the global economic architecture, generating extensive international debate about possible remedies for these deficiencies. The postwar global architecture was guided by major developed economies, centered around the IMF, the GATT, and the World Bank. Today, the balance of economic power is shifting toward emerging economies. Global governance and economic policy must reflect this shift. With contributions from prominent Asian and international trade experts, this book critically examines key changes occurring in the world trading system and explores policy implications for Asia.

Chapter 5: Effective industrial policies and global value chains

Patrick Low and Julia Tijaja

Subjects: asian studies, asian development, asian economics, economics and finance, asian economics, international economics

Extract

In a world of increasingly fragmented international production structures, the decision by the lead firms on where to locate various production activities is a key factor influencing a country’s development and diversification outcomes. The returns to different production activities vary and are reduced over time by the entry of new competitors and the erosion of entry barriers. The speed with which this occurs is affected by a number of factors, both external and internal to value chains. Among the external factors is policy, including industrial policy. From a development perspective, policy makers attach importance to more than just generating income by being part of a global value chain (GVC). Considerations include the type of activity, the scope of participation, indirect returns from forward and backward linkages, the quantity and quality of employment, the degree of knowledge creation, and more generally the contribution to economic diversification and resilience. In many ways, these questions about how to add domestic value through GVC participation is a new take on an old question. Since the beginnings of the process of industrialization, manufacturing has been seen as a vehicle for economic deepening and diversification, and a source of growth and prosperity (Agenor and Dinh 2013). Trade has always figured in this story, as has the role of government in shaping economic structures.

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