Growth based on active participation in domestic and global value chains (vertical integration)

stock-photo-background-concept-illustration-of-business-vertical-integration-glowing-light-508084301Vertical integration is one the important factors reducing costs and improving efficiency of companies. Moreover, vertical integration within the global value chains (through foreign direct investment) produces more positive spillovers by giving access to financial resources, technologies, skills and markets. According to the UNCTAD, 80% of global trade takes place in global value chains. Nowadays products are produced in parts across a wide array of countries instead of individual countries producing them domestically and exporting abroad. The developing-country share in global value-added trade increased from 20 per cent in 1990 to 30 per cent in 2000, and is over 40 per cent today.

Building competitive and innovation-based economy is not possible without active participation in global supply chains. According to estimates produced by simulating general equilibrium model, joining supply chains would lead to increase in GDP by 2.6% and export by 9.4% (Ferrantino, Geiger and Tsigas, 2014). Although these estimates are illustrative rather than precise, they indicate the huge potential impact of policies (directed to improve joining global supply chains) being modeled. Interestingly, gains associated with the participation in global supply chains would take place in all regions and the distribution of gains across countries is even.

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