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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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Upgrading in global value chains

The role of knowledge-based capital

Knowledge-based capital has become a driver of success in global value chains (GVCs). The value created by a GVC is unevenly distributed and depends on the ability of participants to supply sophisticated and hard-to-imitate products and services. Increasingly, such products or services stem from forms of knowledge-based capital such as brands, basic R&D, design and the complex integration of software with organisational structures. Knowledge-based capital also allows companies to shape the architecture of a GVC in order to capture a larger share of the value created. Policy makers in OECD countries and in many emerging economies therefore increasingly focus on investments in knowledge-based capital so as to upgrade to higher-value segments of GVCs and improve their position in the value chain.

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