New Technologies, Global Value Chains, and Developing Economies
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.
This is a background paper written for the Pathways for Prosperity Commission (hosted at the Blavatnik School of Government, Oxford University). I am grateful to Pol Antras, Stefan Dercon, Robert Lawrence, and Toby Phillips for helpful discussion or feedback. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.