FDI 2

13 flashcards · Other · by Daniel F.

1. Value chain

   series of activities within or around a firm that together create a valuable product or service

2. Global production chains

   different stages of the production process take place in different countries countries can participate forwards or backwards

3. global value chain income

   Income generated in a country by carrying out activities in global production networks

4. measure countries participation in GVCs

   Share of trade in components and parts (intermediate goods) in total trade (it has double counting) Value added (VA) generated by countries the amount by which the value of the product exceeds the cost of its material inputs

5. World Input-Output Database

6. explain rise of GVC

   Falling communication and transportation costs allow countries to specialize in certain tasks, rather than building the whole supply chain on their own

7. obstacle for developing countries for participating in GVCs

   high transportation costs Easier to participate via specializing in services, which can be supplied via information and communication technologies (ICT)

8. smile curve

   shows share of foreign value added has increased shaped: Share of value added generated by capital and high skilled has increased relative to low skilled labor Deepens: Advanced economies specializes in activities carried out by high value labor

9. Benefits of GVC participation

   Exposes countries to trade and FDI, which can result in knowledge and technology spillovers. Access to larger markets creates incentives to improve existing capabilities and build new ones. Yields productivity gains, competitive advantages. generates positive reputation effects, which facilitates establishing new business relationships. triggers structural transformation (from agriculture to manufacturing and services) which generates growth and productivity gains.

10. Costs/risks of GVC participation

    Vulnerability to fluctuations in global demand and supply. Risk can be reduced by participating in multiple supply chains Even small changes in production, transport and communications costs can trigger a relocation of a country’s core activities to another country. losses for government, fall in capital and employment requires creating an attractive business environment to secure foreign contracts and investments race to the bottom regarding labor or environmental standards Offshoring tasks ch…

11. Policies affecting GVCs

    Improving public infrastructure (especially transpiration, ICT, electricity.) Improving worker skills (education). Creating a sound business environment (tax incentives, low corruption, strong legal system, efficient bureaucracy, capital mobility, property rights protection). Reduction/elimination of tariff and non-tariff barriers to trade of parts and components. In GVCs, intermediate goods cross borders multiple times. Hence, trade barriers are particularly harmful.

12. Baldwin's (2011) model of conditions for GVC integrations

    A country will be a competitive supplier in a GVC if it can export a good to a foreign country at a cost lower than the cost of making the good in the foreign country pw = price of good in the importing country sources of cost: Marginal cost of production (MC) Transport cost (T) Tariff (tau t) Coordination Cost (chi X) Cost of exporting: MC * XtT Cost of importing: pw * XtT Country will produce and export if: MC * XtT < pw ( MC < pw / XtT ) cost of exporting is lower than the price of the good…

13. Upgrading in GVCs

    to remain competitive in GVC participation, a firm must upgrade within the GVC (climb up the smile curve), otherwise risk of losing to a competitor is high Improvements in product quality (product upgrading). Improvements in production processes (process upgrading). Moving to production stages with higher value added and less competition (functional upgrading). Deepening GVC integration and inter-sectoral upgrading by: Integrating other domestic firms in the value chain via backward linkages. T…