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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 role of global value chains in economic development

Emerging economies, and the People’s Republic of China in particular, play a growing role in today’s global economy. This is partly due to global value chains (GVCs), which have allowed countries to integrate the global economy faster than in the past. The search for cost savings and cheap labour as well as market size/growth have led companies to relocate large parts of their value chains to emerging markets. The increasing global engagement of emerging economies has contributed to rapid growth in exports, employment and economic growth in these countries. Integration in GVCs is only one, albeit an important, stepping stone for economic development. Given their specialisation in labour-intensive and low-cost activities, emerging and developing countries increasingly seek to move up the value chain.

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