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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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The rise of global value chains

Companies increasingly divide up their production processes and locate productive activities in many countries. The resulting global value chains (GVCs) are dramatically changing the nature of economic globalisation. Lower trade and investment barriers, falling transport costs and advances in information and communication technologies have made it easier to fragment the production of goods and services and to offshore certain activities and tasks to other countries. Recent evidence documents the rapid emergence of GVCs, the participation and position of individual countries, and the role played by large and small companies. To fully capture the benefits of GVCs and minimise potential adjustment costs, GVCs call for a rethinking of government policies on economic globalisation.

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