“Global production sharing is an integral part of the global economic landscape. Trade within global production networks has been expanding more rapidly than conventional horizontal trade, said Arndt Corden Department of Economics, Crawford School of Public Policy- Australian National University’s Emeritus Professor of Economics Premachandra Athukorala delivering a public lecture at the Central Bank of Sri Lanka.
“In this context, policy making for export-oriented industrialization needs to focus on specific manufacturing niches within the global infrastructure value chain.
Trade liberalization is far more important for the expansion of global manufacturing value chain (GMVC) trade compared to conventional horizontal trade. According to various estimates, parts and components and final assembled goods traded within GMVCs now account for nearly two thirds of total world manufacturing trade. The high performing East Asian economies have been the major beneficiaries of this structural shift in world trade. Recent years have seen some early signs of GMVCs spreading to ‘latecomers’ to export-oriented industrialization in the region.”
Participation in GMVCs is an effective way of linking domestic manufacturing to dynamic global industries of electronics, electrical goods, medical devices and transport equipment, which are the incubators of new technology and managerial skills.
The very nature of these industries is the continuous shaking-up of the production processes, the emergence of new products and production processes in place of old ones. Thus joining GMVCs has the potential to yield growth externalities through the transfer of technology and managerial know-how.
Engagement in GMVC opens up greater opportunities for achieving Economies-of-scale and Scope. Further, the process of global production sharing opens up opportunities to specialize in ‘high value-to-weight’ components in the value chain that are suitable for shipment as air-cargo.
This helps overcome trade cost disadvantages arising from the geographical distance to major markets.
“GMVC thus has been the prime mover of the dramatic shift in manufacturing exports from developed to developing countries.”
“The expansion of GMVC has made capital and inputs increasingly mobile across national boundaries, hence the patterns of production and trade have become more sensitive to the overall investment climate of the country. The governments should thus create an enabling environment ‘Promoting individual firms’ to specialize in specific tasks within GMVCs is beyond its capacity.”
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