Participation Level in Global Value Chains

The Configuration of Global Value Chains

Source: World Bank (2020) World Development Report 2020: Trading for Development in the Age of Global Value Chains, Washington: World Bank.

Supply chains and the supporting manufacturing and distribution tend to be sequential, implying a hierarchy of the involved locations. Countries can participate in global value chains in various ways since each supply chain has its inherent characteristics. Backward participation implies that a country is using outputs, including goods, parts, resources, and services, provided by countries in prior segments of the value chain. Forward participation implies that the outputs of a country are used by a third country. At the aggregate level, it is possible to categorize a country into a category expressing the dominant value chain configuration. These include:

  • Innovative activities. Economies generating the bulk of innovations and patents and have a high level of investment in research and development. These economies have a high GDP per capita and represent important consumption markets, impacting the structure of value chains as they are the final destination of several flows of material goods.
  • Advanced manufacturing. Economies having a high share of manufacturing and services as of their exports. Assembly and the use of components provided by earlier stages of the value chain is a core aspect of this function. They have a domestic added value share in manufacturing and service exports of more than 80%. Several of these components are imported from third countries, implying a high share of backward participation.
  • Limited manufacturing. Economies less dependent on exports of parts and manufactured goods. They tend to have a less diversified range of outputs.
  • Commodities. Economies that tend to focus on the earlier stages of global value chains, namely the provision of raw materials and commodities. The share of manufacturing in exports is low, and there is a limited number of backward linkages. For high commodities, the share of the domestic added value of primary goods is more than 40%. For limited commodities, it is between 10 and 40%. For low participation, it is less than 20%.

Participation patterns are similar to those related to economic development, with the most advanced poles including Western Europe, North America, and East Asia (Japan/South Korea). Countries engaged in machinery and electronics manufacturing tend to participate most in global value chains. Countries well endowed with natural resources and agricultural goods tend to have a high level of forward participation since these commodities are used to manufacture intermediate goods.