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Interconnected Economies

Benefiting from Global Value Chains

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Global Value Chains (GVCs) have exploded in the past decade and refer to the international dispersion of design, production, assembly, marketing and distribution of services, activities, and products. Different stages in the production process are increasingly located across different economies, and intermediate inputs like parts and components are produced in one country and then exported to other countries for further production and/or assembly into final products. The functional and spatial fragmentation that has occurred within GVCs has significantly reshaped the global economic landscape, thereby raising some new major policy challenges for OECD countries and emerging countries alike: trade policy, competitiveness, upgrading and innovation and the management of global systemic risk.

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Global value chains and competitiveness

As companies and countries become embedded in international networks of production the global value chains (GVCs) they create challenge prevailing policy thinking about competitiveness. The growing upstream and downstream interconnections in GVCs increase the interdependence of countries’ competitiveness policies and limit the effectiveness of national policies. Yet there have been calls for “new” industrial policies in many countries, often to support specific industries, in particular manufacturing. Defensive policies to protect domestic industries or firms are increasingly ineffective in a world of GVCs, however, whereas outsourcing and offshoring enhance the export competitiveness of countries by providing access to cheaper, more differentiated, and better quality inputs.

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