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World Investment Report 2013: Global Value Chains: Investment and Trade for Development122

About 60 per cent oglobal trade, which today

amounts to more than $20

trillion, consists o trade

in intermediate goods

and services that are

incorporated at various

stages in the production

process o goods and

services or fnal consumption. The ragmentation

o production processes and the international

dispersion o tasks and activities within them have

led to the emergence o borderless production

systems which may be sequential chains or

complex networks and which may be global,

regional or span only two countries. These systems

are commonly reerred to as global value chains

(GVCs).

GVCs are typically coordinated by transnational

corporations (TNCs), with cross-border trade o

production inputs and outputs taking place within

their networks o afliates, contractual partners

(in non-equity modes o international production,

or NEMs; see WIR11) and arms-length suppliers.

The phenomenon o international production

driven by TNCs engaging in efciency-seeking

FDI is not entirely new the theme o WIR93 was

integrated international production however,

since around 2000, global trade and FDI have

both grown exponentially, signifcantly outpacing

global GDP growth, reecting the rapid expansion

o international production in TNC-coordinated

networks.

GVCs lead to a signifcant amount o double

counting in global trade. Raw material extracted in

one country may be exported frst to an afliate in a

second country or processing, then exported again

to a manuacturing plant in a third country, which

may then export the manuactured product to a

ourth or fnal consumption. The value o the raw

material counts only once as a GDP contribution in

the original country but is counted several times in

world exports.1

Recent advances in trade statistics aim to identiy

the double counting in gross trade fgures andshow where value is created in global production

INTRODUCTION

Global trade and FDI havegrown exponentially over

the last decade as frms

expanded international

production networks,

trading inputs and outputs

between afliates and

partners in GVCs.

chains. Figure IV.1 shows a simplifed example ovalue added trade.

Value added trade statistics can lead to important

policy insights on GVCs, trade, investment and

development. For WIR13, in a collaborative eort

with the Eora project,2 UNCTAD built a value added

trade dataset: the UNCTAD-Eora GVC Database

(box IV.1).3 The database will be used in this chapter

to assess the patterns, drivers and determinants,

development impact and policy implications o

value added trade and investment.

GVCs are a concept taken up by dierent schools

o economic theory, development studies and

international business disciplines, with each

strand o scholars adopting dierent defnitions

and boundaries o analysis. Table IV.1 illustrates

a number o important contrasts. This chapter

will attempt to bring together the various schools

o thought, borrowing concepts rom dierent

disciplines and adding new cross-disciplinary

insights.

UNCTADs research objectives in this report areto demonstrate how GVCs constitute the nexus

between investment and trade, to show the

importance o GVCs in todays global economy and

especially their weight in developing countries, to

provide evidence or the impact o GVC participation

in developing countries, and to make concrete

recommendations to help policymakers maximize

the benefts o GVC participation or economic

growth and development while minimizing the

associated risks.

To this end, in the remainder o this chapter, SectionA describes GVC patterns at the global level and

in developing countries specifcally, and shows

how FDI and TNC activities shape such patterns

based on (and building on) value added trade data.

Section B borrows more rom other GVC disciplines

and international business theory to discuss

frm-level drivers o GVC activity and locational

determinants, which are important or policymakers

in understanding the actors inuencing country-

level GVC participation. Section C describes

the development impacts o GVC participation,including the GDP contribution o GVCs (direct