When value chains backfire

Did globalisation contribute to the economic crisis and if so how? This is one of several interesting questions asked in Measuring Globalisation: OECD Economic Globalisation Indicators 2010. In snapshot mode, this book looks at the financial crisis, trade, technology and multinational enterprises, and asks how these may have influenced the proliferation of the crisis, just as they helped spread prosperity and wealth in the first place.

One consideration is how production, trade and investment operate across countries and continents. A product and its components, including its intellectual inputs, can be traced to several different countries via so-called global value chains. Indeed, much manufacturing trade actually occurs within one industry, or even within one large enterprise, as components, finished goods, as well as related services, such as accounting and marketing, are exportedand imported between branches of the same firm located in different countries. When economic activity is buoyant, it pulsates through the value chain, and leads to new jobs, trade, investment and consumption. The benefits are felt along the chain in several locations. But the reverse also happens. As Measuring Globalisation: OECD Economic Globalisation Indicators 2010 points out, with increased economic interdependence, the downturn fed through these global value chains in a sort of domino effect.

One remarkable trend examined in the book is the sharp drop in world trade at the start of the crisis. In fact, that decline in 2008 was the deepest decline on record for all countries, and in part reflects the increased interdependence via these global value chains. What was particularly remarkable, the authors say, was the number of countries which simultaneously reported such sharp drops: by the first quarter of 2009, all OECD countries had shown a decline in trade of more than 10%. Not all types of trade were equally affected, with machinery and transport hardest hit.

The authors suggest some areas for policymakers to consider, given intra-firm trade and investment and the complexity of global value chains. One is to emphasise the likes of innovation, skills and competitiveness, for instance, rather than targeting entire industries.

ISBN 978-92-64-08435-3


©OECD Observer No 281, October 2010




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