Research Reports

Assessing Participation of CAREC Countries in Global and Regional Value Chains
Friday, 28 February, 2020

The advent of globalization in recent decades has had a profound impact on the development path of countries around the globe. The rapid development of ICT technologies coupled with global tendencies to reduce tariff and non-tariff barriers since WWII made possible economic integration between countries on a scale never imagined before. The integration of production processes gave rise to the concepts of offshoring, outsourcing, vertical specialization and brought a new set of opportunities for developing economies. The participation of developing countries in Global and Regional Value Chains (GVCs and RVCs) created new opportunities for firms (and entire countries) to specialize in tasks and business functions rather than specific products, fully employ their production potential and become a part of the international production networks.

At the same time, participation in such value chains comes with its own sets of challenges. Modern VCs tend to be quite competitive and versatile; hence, developing countries often face challenges of fulfilling pre-conditions for integration into Global and Regional Value Chains. In recent years economic growth around the world has been slowing down, and leading emerging markets (China, Latin America, South-East Asia) along with European countries, were the first to feel its effects. Developing economies around the world, which historically relied on trade with a larger, more mature market, started to look for growth opportunities outside their orbit, and the question of creating and integrating not only into global but also into regional value chains became important for economic resilience and stability.

Moreover, participation in RVC can also be seen as the first step towards greater participation in GVC (Slany, 2017) for developing countries that have difficulties integrating into GVC due to less advanced technologies, production processes, and skills sets. Whereas economic literature shows that participation in GVC in particular (both buying and selling activities) benefits developing economies (Kowalski, P. et al. (2015)) in terms of productivity, sophistication, diversification of exports.

Yet, before policymakers can embark on designing and implementing economic policies which promote RVC and GVC participation, it is important to take stock of just how integrated their country in the regional and respectively global production and trade, and through the exercise of mapping RVC and GVC connections to understand where the opportunities for further integration lie. This paper is the first one to create a comprehensive mapping of the GVCs and RVCs for CAREC region countries by using the inter-country input-output matrices. It contributes to the empirical literature on RVC by assessing the trade linkages between countries in this group and further defines the methodology to compare RVC and GVC participation on the industry level to identify the areas for potential policy intervention to strengthen the value-chain contribution of any given country. In addition, this paper presents case studies of particular industries in order to explain and supplement the empirical findings.