In today’s increasingly interconnected global economy, place-based development strategy must be strategic towards leveraging global economic opportunities. Riccardo Crescenzi and Oliver Harman explore this intricate landscape and provide a valuable guide for regional policymakers in their aptly titled book, Harnessing Global Value Chains for Regional Development: How to Upgrade through Regional Policy, FDI, and Trade.
This book delves deep into the importance of the export-led processes of development, especially for lagging regions across the globe. Income disparities among regions are primarily influenced by disparities in exports. While both intensive and extensive margin of export diversification play key roles, the inability of regions to diversify into new exports is a particular hindrance. The authors articulate a compelling argument for both developing and developed economies to pivot towards export-led growth through integration into global value chains (GVCs). Foreign direct investment (FDI) and the importance of multinational enterprises (MNEs) are a recurring theme throughout for subnational development.
Not only has this book centred the focus of policymakers onto exports, but also they have keenly pointed out the international structure of global production, and how subnational regions can fit in. Complex production has become an international affair. The more complex and sophisticated an export is, the more intermediate imports are sourced from all over the globe. This complex production cannot be captured by a single country, giving subnational regions ample opportunity to join these GVCs. Ultimately, locales which tend to export more intricate products are seamlessly integrated into GVCs, and thus richer as a result. The authors rightly focus on how to support regions to fit into global production and contribute sophisticated inputs.
The emphasis on economic openness and regional engagement with global production is a key highlight, and one that offers immediate benefit to regional policymakers in broadening their perspective. The benefits of free trade agreements (FTAs), both inward and outward FDI, MNEs, and imbibing productive knowledge from abroad cannot be overstated and are rightfully identified by the authors as key towards enhancing one’s export position. Moreover, the significance of both importing and exporting intermediate products (as opposed to final goods) is underscored. Regarding FDI, Crescenzi and Harman rightly note: ‘FDI can bring new technologies, managerial practices, and marketing strategies that can improve the quality and variety of goods and services, and increase the efficiency and effectiveness of production processes.’ This aptly captures the essence of FDI’s role in infusing an economy with the productive knowledge – or knowhow – that forms the basis for what we at the Harvard Growth Lab refer to as economic complexity.
Crescenzi and Harman shed light on not just the importance but also the process of export diversification, drawing a clear distinction between horizontal leaps (existing tasks in new but complementary GVCs) and vertical leaps (new tasks along existing GVCs). The discussion on vertical leaps demonstrates how a country’s role in a GVC can and should go beyond assembly and into higher value-add sections of the value chain. As the authors note: ‘vertical policies that promote upgrading and innovation, such as through investment in R&D, technology transfer, and skills development, are crucial for enhancing the competitiveness and sustainability of firms and regions’. Participation in an existent GVC can be widened to capture a larger tranche of global production.
Similarly, the authors flesh out how to make horizontal leaps into new GVCs. The authors note how horizontal leaps tend to happen in industries which are related to the existing productive structure of a place. Horizontal leaps are not random, nor should they always target the ‘hot’ industries such as technology and ICT. Leaps into new export industries – critical for continued economic growth – should target GVCs that match existing capabilities and regional advantages. Here, the previous highlight on economic openness remains most relevant. FDI and MNEs play an invaluable role in bringing in new knowhow to an economy which allows a region to export new products and make these key horizontal leaps.
One of the standout sections is the focus on green GVCs (GGVCs). In a world veering towards decarbonisation, the potential for diversification is high. The authors quickly home in on the burgeoning significance of green industrial parks (GIPs) in determining future manufacturing competitiveness. Entrance into GGVCs is not a given, and the book points out that the success of GIPs depends on a range of factors, such as the availability of green technologies and services, the level of stakeholder engagement and participation, the quality of infrastructure and services, the regulatory and policy framework, and the capacity of local institutions and actors to manage and monitor the park. While Crescenzi and Harman adeptly note the importance of GGVCs, one feels the diverse economic potential of GGVCs are underexplored. GGVCs are pivotal for decarbonisation of the developed world, which emits most of the carbon. Developing countries, on the other hand, have very low carbon emissions per capita. The focus for developing country entrance into GGVCs should be less on local mitigation and more on how they can contribute to lowering global emissions by supplying the means of decarbonisation.
As noted by the authors, GIPs hold a unique importance. As the world demands products to be made from green energy (see the European Union’s Carbon Border Adjustment Mechanism), GVCs will relocate to areas in which renewable energy is cheap and plentiful. As it stands, the Global South holds a distinct natural advantage regarding renewal energy production (solar, wind, hydropower), so long as such potential can be harnessed and linked to GIPs. In short, because clean energy is better consumed close to its source, energy intensive industries will have to relocate to renewable energy endowed places (which happen to be poor). The dynamics of how to link access to renewable energy with the relocation of energy-intensive manufacturing will be critical for regional policymakers.
Further, global decarbonisation represents a wide opportunity for the developing world regarding the production of the enablers of decarbonisation. Such items – including component parts for turbines, solar panels and certain battery types – will be in rising demand throughout the process of global decarbonisation. An explicit targeting of entrance into these GVCs is strategically important to enable the rich to decarbonise and the poor to grow. This represents an opportunity in which the authors may wish to follow-up.
In conclusion, Harnessing Global Value Chains for Regional Development is a must-read for policymakers, researchers and anyone keen on understanding the dynamics of modern economic development, especially as they relate to global economic production. Crescenzi and Harman have crafted an important work that bridges theory with actionable insights, offering a roadmap for regions keen on leveraging GVCs for sustainable growth.