GVC Analysis: A Tool for Economic Development

The global economy is increasingly structured around global value chains (GVCs). The evolution of GVCs has significant implications for global trade, production and employment and how developing country firms, producers and workers integrate into the global economy.

GVCs link firms, workers, and buyers around the world and are often a stepping-stone for developing countries’ participation in the global economy. For many countries the ability to effectively enter GVCs is a vital aspect of development. This supposes an ability to access GVCs, to compete successfully and to capture gains in terms of national economic development, capacity-building and generating more and better jobs to reduce unemployment and poverty. It is not only a matter of whether to participate in the global economy, but how to do so gainfully.

The GVC framework allows one to understand how global industries are organized by examining the structure and dynamics of different actors involved in a given industry. In the very complex industry interactions of today’s globalized economy, the GVC methodology is a useful tool to trace the shifting patterns of global production, link geographically dispersed activities and actors within a single industry, and determine the roles they play in developed and developing countries alike. The GVC framework focuses on the sequences of value added activities within an industry, from conception to production, end use and beyond. It examines the job descriptions, technologies, standards, regulations, products, processes, and markets in specific industries and places, thus providing a holistic view of global industries from the top down and the bottom up.

The comprehensive nature of the GVC framework allows policymakers to answer questions regarding development issues that have not been addressed by previous paradigms. Additionally, it provides a means to explain the changed global-local dynamics that have emerged within the past 20 years. As policymakers and researchers alike have come to understand the pros and cons of the spread of globalization, the framework has gained importance in tackling new realities. This includes topics such as the role of emerging economies like China and India as new drivers of value chains, the importance of international product and process certifications as preconditions of participation, the proliferation of private regulations and standards, the need for new workforce development initiatives, and examination of social and environmental development concerns.

A range of institutions and governments have commissioned GVC studies to improve understanding of global industries. This knowledge has served as a guide in the creation of new programs and policies for economic development.