Book Description

Over the last two or three decades, the world economy has witnessed the rapid integration of global markets through trade. The rising integration of world markets has brought with it a disintegration of the production process. Production processes are more and more fragmented across firms and countries, and trade in goods is increasingly being replaced by trade in tasks. This represents a breakdown in the traditional mode of vertically-integrated production and goods-based trade. Some economists have called this new trade landscape “kaleidoscope comparative advantage”, while others have described it as “slicing the value chain”.Information and communication technology (ICT), in particular, has played a critical role in the changing pattern of international trade. Vertical trade across borders has made production truly global. Global firms are now finding it profitable to outsource increasing amounts of the production process abroad. Intermediate goods, such as parts and components, cross borders repeatedly and each country participating in this global supply chain creates its own value added along the production processes. Today, a huge amount of manufacturing goods are assembled in China and Mexico, but their commercial value comes from the numerous countries that participate in the global value chains. The labels “Made in China”, “Made in Mexico” or “Made in Poland” may no longer reflect the true origins of final products.The proliferation of global production networks coincides with the rise of China, India and other emerging economies as new industrial hubs and their splendid economic growth. From the late 1980s, a large number of developing economies jumped into a high growth trajectory. The growth of GDP per capita nearly tripled from around 2 percent in the 1980s to almost 6 percent before the global economic crisis of 2008. In particular, the catch-up of emerging market economies for the past two decades has been more broadly based than in the past. China has been at the forefront, followed by a group of successful developing countries in Asia, Eastern Europe and Latin America. China's economic catch-up in terms of income per capita over the last two decades has been incomparable to other countries.Some argue that the modern form of global supply chains is making it easier for emerging economies to industrialize. Business-friendly government, huge labor forces and lower wages are sufficient conditions to attract global trading firms. In return, foreign firms provide technology and management. On the other hand, their unprecedented industrialization is transforming the global economy with deep implications for production, trade, and the distribution of incomes. The rise of China and other emerging economies has continued to disrupt the labor markets in a wide range of manufacturing industries of developed countries, while having simultaneously provided new opportunities for off-shoring to global firms. There have been growing concerns and sentiments in the U.S., Europe and Japan that the new trade reality has been linked to declines in manufacturing employment and wages in traditional industrial sectors, which, in turn, have fuelled demands for the return of industrial policies and trade protection in these countries.