7 - Economic Development as Industrial Upgrading in Global Value Chains

Summary

Our main focus in this book until now has been the industrialized countries and especially the United States. Even when we considered foreign direct investment (FDI) in Chapter 4, it was to further our understanding of lead corporation strategies. In this chapter, we look more closely at the implications of the steady increase in industrialized country offshoring for the developing countries. Most research on global value chains (GVCs) has in fact focused on developing countries. As we see in this chapter, the expansion of GVCs amidst a global push to trade liberalization and export orientation has rendered the goal of “industrial upgrading” within GVCs to be nearly synonymous with economic development itself. If economic development in the mid-twentieth century was driven by strategies of import substitution, and the later part of the century by a clear export orientation, the last twenty years could be said to be characterized by vertically-specialized industrialization efforts.

Section 7.1 discusses the transition to vertically-specialized industrialization (VSI). We focus on the growth of export processing zones (EPZs), an important entry point for developing economies into GVCs. In Section 7.2, we propose simple and operational measures of upgrading. Here we add the notion of “social upgrading,” relating to wages, employment, and social standards, to the standard notion of industrial or economic upgrading. We show that surprisingly few developing countries satisfy some simple criteria of upgrading. Export growth alone, we find, is not a guarantee of industrial upgrading. We explore the extent to which economic upgrading results in social upgrading, looking at both the national and GVC level.