Working Paper: CEPR ID: DP13220
Authors: Dani Rodrik
Abstract: Many of the exports of developing countries are channeled through global value chains (GVCs), which also act as conduits for new technologies. However, new capabilities and productive employment remain limited so far to a tiny sliver of globally integrated firms. GVCs and new technologies exhibit features that limit the upside and may even undermine developing countries’ economic performance. In particular, new technologies present a double whammy to low-income countries. First, they are generally biased towards skills and other capabilities. This bias reduces the comparative advantage of developing countries in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade. Second, GVCs make it harder for low-income countries to use their labor cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. These are two independent shocks that compound each other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.
Keywords: GVC; international trade; economic growth
JEL Codes: O33; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| New technologies (O39) | Reduction in comparative advantage of low-skilled labor in developing countries (F66) |
| Participation in GVCs (F12) | Negative impact on ability of low-income countries to leverage labor costs (F66) |
| New technologies + GVCs (O36) | Exacerbation of economic challenges faced by developing countries (F63) |