An Overview of World Development Report 2020 (WDR)

Most probably you are aware of world development report (WDR) 2020 released by the world bank, In case your answer is NO, then this introduction from Wikipedia will surely help you to understand what is it.

“The World Development Report (WDR) is an annual report published since 1978 by the International Bank for Reconstruction and Development (IBRD) or the World Bank. Each WDR provides in-depth analysis of a specific aspect including youth agriculture equity public services etc of economic development. The reports are the Bank's best-known contribution to thinking about development.”

Due to the human nature of curiosity, we always wanted to know about what is going around the world. I hope this blog will help you to calm your curiosity regarding world development.

This approx. 300 pages report is divided into 5 Major Parts, namely:-

1.       Overview

2.       Global value chain, what are they.

3.       What are the effects of GVCs?

4.       What domestic policies facilitate fruitfully Participation?

5.       How can international corporation help?

World development report is based on the concept of the Global value chain(GVC). So first we should understand

What is the global value chain?

The global value chain is the breakup of the production process across the countries. Firms specialize in a specific task and do not produce the whole product. Interactions between firms typically involve durable relationships.

International trade has grown rapidly after 1990, powered by the rise of global value chains (GVCs). poor countries grew faster and began to catch up with richer countries. Poverty fell sharply. Productivity and incomes rose in countries that became integral to GVCs e.g. Bangladesh, China, and Vietnam, among others. The steepest declines in poverty occurred in these countries.

Expansion of GVCs has slowed after 2008, mainly due to following 2 reasons labour-saving technologies such as automation and 3D printing and 2^nd is trade conflicts among large countries.

The big question is whether linking to GVC chain is still beneficial for developing countries?

GVCs is not a new concept, it has existed from centuries. But they grew swiftly from 1990 to 2007 as technological advances—in transportation, information, and communications—and lower trade barriers.
In recent years, however, trade and GVC growth has slowed. One reason is the decline in overall economic growth and especially investment. Another reason is the slowing pace and even reversal of trade reforms.

All countries participate in GVCs-but not in the same way. E.g. India and china contribute as advanced manufacturing and services whereas Pakistan Bangladesh contributes as limited manufacturing and USA and EU contributes as innovative activities.

Ethiopia firms participating in GVCs are more than twice as productive as similar firms that participate in standard trade. A 1 percent increase in GVC participation is estimated to boost per capita income by more than 1 percent, or much more than the 0.2 percent income gain from standard trade. 

The biggest growth surged when countries transition out of exporting commodities and into exporting basic manufactured products (for example, garments) using imported inputs (for example, textiles), as has happened in Bangladesh, Cambodia, and Vietnam.

Participation in GVCs is associated with a reduction in poverty as it boosted income and employment growth. Because gains in economic growth from GVCs will be larger than from trade in final products, poverty reduction from GVCs also turns out to be greater than that from standard trade. Eg Mexico and Vietnam.

Whether the gain from GVC is distributed equally across the countries?

No, The gains from GVC participation are not distributed equally across and within countries. Large corporations that outsource parts and tasks to developing countries have seen rising markups and profits, suggesting that a growing share of cost reductions from GVC participation are not being passed on to consumers. At the same time, markups for the producers in developing countries are declining. Such a contrast is evident, for example, in the markups of garment firms in the United States and India, respectively.

Within countries, Inequality can also creep upward in the labour market, with a growing premium for skilled work and wages for unskilled work. Women also face challenges. GVCs may offer more women jobs, but they seem to have even lower glass ceilings. Women are generally found in the lower value-added segments, it is hard to find women owners and managers.

How government policies and FDI norms affect the Global Value Chain(GVC)?

In GVC Participation apart from geography, market size, government policies also play a major role.

Attracting FDI is important at all stages of participation.
It requires openness, investor protection, stability, a favourable business climate, and, in some cases, investment promotion. Some countries, such as those in South-east Asia that have benefited from foreign investment in goods, still restrict foreign investment in services. countries such as Costa Rica, Malaysia and Morocco have attracted transformative GVC investments by large multinational corporations through the use of successful investment promotion strategies.

How a country can maximize benefits from GVC?

Improving the business and investment climate for GVCs on a national scale can be costly and take time, encouraging many countries to set up special economic zones (SEZs). But the results so far suggest that relatively few SEZs are successful, and only when they address specific market and policy failures.

Getting the conditions right, even in a restricted the geographical area requires careful planning and implementation to ensure that the resources needed such as labour, land, water, electricity, and telecommunications are readily available, regulatory barriers are minimized, and connectivity is seamless.

The few successful zone programs in countries such as China, Panama, the United Arab Emirates, and now in Ethiopia and on the other side numerous examples of SEZs that have failed to attract investors or grow, give a fair idea on how to use SEZs for development.

The international trade system is especially valuable in a GVC world. GVCs span boundaries and policy action or inaction in one country can affect producers and consumers in other countries. International cooperation can help address the spillover effects of national policies and achieve better development outcomes.

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Thanks for your valuable time. Please feel free to share your views on the same in the comment section.

Regards

CA Pankaj Sharma

+91 96361 25021

*source- world development report (wdr 2020) issued by world bank.