Global Value Chains and the WTO

First aired on April 15, 2019.

In this episode of "Dollar and Sense," David Dollar of Brookings hosts Robert Koopman of the World Trade Organization (WTO) for a discussion on global value chains.

Drawing from a recent WTO report, Koopman provides a background on changes in the role of global value chains and their implications for developing countries. The splitting-apart of global value chains has allowed developing countries with fewer in-house resources to access the global economy in ways they hadn't been able to do before. For instance, he notes the different experiences between Thailand and Malaysia - Malaysia decided to try developing a car industry, while Thailand settled for producing a couple parts, but producing them well.

This allowed them to focus on producing their particular parts at a lower cost, supplying the global supply chains, and gradually developing their own local industries.

Koopman notes the concern in this for many developing countries: what if they get stuck at the bottom of the value chain?

His advice is for firms to focus in the moment on what they can do and taking that single step forward, and then suggests that those firms, as they develop expertise in their single part, say, tires, that they look around for how they can continue developing their know-how, and expanding the knowledge they've developed into further sectors. It's not a guaranteed path, but he finds that a firm and a local economy will fare better if they utilize their ability to tap into the global market, and then continue pushing themselves to contribute more to it, rather than trying to develop fully protectionist economies that engage solely in import substitution.

The right answer is probably going to be a mixture of encouraging local firms to develop expertise on their own, and also setting up an institutional framework so that local firms can benefit from knowledge transfers of multinationals operating on their soil.