The expansion of global value chains during the past 20 years has widened the gap between export value and domestic value added, diminishing the per-unit contribution of exports to the country's economic growth. Thus, policies now need to target creating value added rather than increasing gross exports and focus on enhancing the competitiveness of input and production activities. In particular, regulatory reform must take place in the service sector to eliminate unnecessary obstacles to competitiveness. Moreover, to utilize global value chains more effectively, efforts should be made to enhance the efficiency of offshoring and attract production to the country's shores in order to create more domestic valued added and jobs.
The term “value chain” refers to the whole production process of a good or service from the design and raw material processing to manufacturing and market services for the final customers. A global value chain (GVC) indicates production across multiple countries (Simola 2021). Wang et al. (2017) distinguish between simple and complex GVC activities and classify GVC participation in the following four activities: (i) export its domestic value added in intermediate exports used by a direct importing country to produce products for the importing country's final consumption (simple GVC); (ii) export its domestic value added in intermediate exports used by a direct importing country to produce products for importing countries' exports to third countries (complex GVC forward participation); (iii) importing foreign value added in intermediate imports to produce products for domestic use (simple GVC); (iv) importing foreign value-added in intermediate imports to produce products for its gross exports (complex GVC backward participation).Trade and foreign direct investment (FDI) are considered to be the main driving factors of Vietnam's economic growth. However, Vietnam's growth rates became substantially lower in the first decade of the 21st century and even lower after 2008, putting the country in high danger of falling into a middle-income trap (Nguyen and Truong 2022). Overcoming this huge challenge will require Vietnam to make greater progress in GVC participation, which can only be obtained by implementing the appropriate policy reforms and adjustments, particularly in FDI, trade, and industrial and institutional areas. In this regard, assistance and cooperation from Korea - an advanced economy, especially a top trade and FDI partner of Vietnam - would play a significant role in improving Vietnam's GVCs participation.Against this backdrop, this study aims to examine Vietnam's GVC participation. It then assesses the major challenges faced by Vietnam's GVC participation. Based on this, the research draws relevant policy implications for Vietnam-South Korea (hereafter Korea) economic cooperation to improve Vietnam's GVC participation in the following years.
This paper measures the extent to which South Korea participated in global value chains (GVCs) from 1995 through 2011 and scrutinizes the consequences of such participation on the Korean economy. To this end, the World Input Output Database is utilized to calculate GVC income, GVC employment, and value-added exports created by Korean and foreign industries. Our findings show that Korea radically internationalized its production activities during the sample period, widening the gap between gross exports and value-added exports. We also document that Korea's participation in GVCs has changed the value-added and employment structures in domestic industries in accordance with their comparative advantages while exacerbating the degree of wage inequality.
Global Value Chains (GVCs) are known to have a skill-biased effect on the wage structure in developed countries. If the skill groups are divided into two - high-skilled vs low-skilled groups - then the direction of the skill-biased effect is clear in the existing literature. Many studies have pointed out that deepening of GVCs has more detrimental effects on the low-skilled group, though the size of the effect was controversial. The OECD (2015) argued that a skill-biased effect on wages was not that large, and it was also associated with the type of engagement of GVC participation.If the skill levels are divided by three - high-skilled, medium-skilled, and low-skilled groups - then the direction of the skill-biased effect is obscure, especially that of the medium-skilled group. It is about which groups - medium-skilled vs low-skilled- suffers more detrimental effects from deepening GVCs. Acemoglu and Autor (2011) argued that employment and wages in many developed countries were recently polarized, which means that international competition due to globalization has targeted primarily medium-skilled labor. Low-skilled jobs, such as cleaning or nursing care services, are relatively difficult to off-shore, since those jobs are offered on a person-to-person basis. However, technology development and its impact on GVCs have intensified in recent years, and the negative impact on low-skilled workers is more significant.This study analyzes the skill-biased effect of GVCs on wages in Korean manufacturing and derives policy implications. Skill groups are divided into three groups - high-skilled, medium-skilled, and low-skilled- according to the education level. To derive the policy implications, we also refer to the German case. The German economy, as well as the Korean economy, has grown significantly with the GVCs in the 2000s.
Global value chains (GVCs) powered the surge of international trade after 1990 and now account for almost half of all trade. This shift enabled an unprecedented economic convergence: poor countries grew rapidly and began to catch up with richer countries. Since the 2008 global financial crisis, however, the growth of trade has been sluggish and the expansion of GVCs has stalled. Meanwhile, serious threats have emerged to the model of trade-led growth. New technologies could draw production closer to the consumer and reduce the demand for labor. And trade conflicts among large countries could lead to a retrenchment or a segmentation of GVCs. World Development Report 2020: Trading for Development in the Age of Global Value Chains examines whether there is still a path to development through GVCs and trade. It concludes that technological change is, at this stage, more a boon than a curse. GVCs can continue to boost growth, create better jobs, and reduce poverty provided that developing countries implement deeper reforms to promote GVC participation; industrial countries pursue open, predictable policies; and all countries revive multilateral cooperation.
The stated goal of the US-led Indo-Pacific Economic Framework for Prosperity (IPEF) is to create standards that enhance and elevate regional trade and investment flows, but it is clearly aimed at reducing the role of China in global supply chains. As China is Korea's largest trading partner, US policy discouraging Chinese participation in supply chains has immediate detrimental implications for Korean manufacturers. The United States is the second-most important destination for Korean exports. Given the values of these triangular trade flows, Lovely and Dahlman assess South Korea's exposure to US demands to remove or reduce Chinese participation in the manufacture of exports destined for the US market. The reliance of the proposed framework on certain standards will likely reduce Chinese participation in IPEF trade networks. Korea may benefit from this trend, but IPEF could also increase production costs for Korean companies, especially in the electronics sector, a problem that would worsen if China retaliates against these companies. To reduce these risks, Korea might find it prudent to reduce its reliance on intermediate goods from China for products it produces for export to the United States. The Korean government should also seek to better understand its exposure to US-China trade tensions and diversify its trade relations. Korean firms should start preparing for supply chain disruptions, perhaps by making investments at home. Korea could also help other IPEF members reduce supply chain disruptions while addressing security concerns over China.
English Abstract: One of the major changes in the current global business environment is that the global value chains (GVCs) of just a few multinational enterprises (MNEs) conduct most of the global business activities. These GVCs are structurally subdivided and regionally dispersed as a result of these MNEs' new strategies, which are influenced by the globalization, liberalization and deregulation of nations and enterprises, the development of transportation and telecommunication technologies, and the growth of emerging market economies. The process of such globalization is further accelerated by the decreasing costs of coordinating international division of labor activities and simultaneously provides threats and opportunities not only for multinational enterprises, but also for small and medium enterprises (SMEs). Small and medium enterprises (SMEs) can secure financial stability, increase productivity and enter the global market by participating in GVCs of the MNEs. However, SMEs require higher levels of financial and managerial resources and face more global competition to successfully participate in GVCs. Due to the many opportunities and threats to SMEs that come with participating in GVCs, appropriate government policies providing protection and support are needed for SMEs in developing, emerging, as well as developed markets (OECD 2007; UNCTAD 2010). The purpose of this study is to examine the political and strategic implications of supporting the participation of Korean SMEs in GVCs through detailed analyses of the current global competitiveness and industrial revealed comparative advantages (RCAs) of Korean SMEs. While previous studies on this topic exist, this study differentiates itself in three main ways: (1) This is the first time trade in value added (TiVA) is used to analyze Korean SMEs' industrial competitiveness. (2) The methods of Korean SME participation in GVCs are classified by domestic and foreign production, of which competitiveness is measured by domestic value added and foreign direct investment, respectively. (3) This study proposes the linkage strategy between Korean MNEs and SMEs based on the evaluation of their industrial competitiveness.
A radical shift is underway in global value chains as they increasingly move beyond traditional manufacturing processes to services and other intangible assets. Digitization is a leading factor in this transformation, which is being accelerated by the coronavirus disease (COVID-19) pandemic. The Global Value Chain Development Report, the third of a biennial series, explores this shift beyond production. The report shows how the rise of services value chains offers a new path to development and how protectionism and geopolitical tensions, environmental risks, and pandemics are undermining the stability of global value chains and forcing their reorganization geographically. It is co-published by the WTO, the Asian Development Bank, the Research Institute for Global Value Chains at the University of International Business and Economics, the Institute of Developing Economies, and the China Development Research Foundation.
English Abstract: The concept of Global Value Chain (GVC) is garnering renewed attention as the production processes become more internationally fragmented with the development of technology and the reduction of trade costs. Korea has also actively participated in GVCs ever since it adopted export-driven growth strategy way back in 1960s and fully liberalized its import market in 1980s. Such active international production sharing led to low domestic value added embedded in Korea's export. However many still see export itself as the primary objective for Korea. With this in mind, this study attempts to reinterpret Korea's trade and industrial structure from the perspective of GVCs with the aim to better understand Korean economy and suggest policy direction that can lead to further economic development.The study first defines the concept of GVC, and then shows how deeply Korea is involved in the GVCs using the World Input Output Table (1995~2011) and the relevant Socio-Economic Accounts. Then it shows how much Korea has exported in value added terms and compares it with the traditional gross exports. Lastly, the relationship between the evolution of GVCs and the income and employment structure of domestic industries is analyzed.The findings and policy implications can be summarized as follows: Korea has conducted internationalization of production activities at a significantly higher speed than other countries. Meanwhile, the increase in foreign final demand has boosted export of domestic value added which led to growth in GDP. This was achieved by exporting intermediates rather than final goods. It was also identified that the internationalization of production activities increased the demand for domestic high-skilled labor and replaced domestic middle- and low-skilled labor with those from abroad. Based on these findings this study suggests to (i) strengthen the competitiveness of domestic inputs, (ii) systematically analyze foreign final demands and actively break into foreign markets, and (iii) develop the capacity of domestic workers.
