Governmental decisions in the context of global value chains

By: Carolina Herrera Cano (caroherca@gmail.com) *

International Business Student. Universidad EAFIT, Colombia

The existence of an interconnected network of production and communication is not a trend arising from the processes of globalization of the last decades. The influence of foreign actors has defined the way in which countries establish its economic policy. This is the case of mining exploitation, and technology exports which are examples of how ancient practices have created global value chains even before telecommunications were imagined. Nevertheless, the effectiveness of these processes has rapidly changed, and the GVCs have gained importance for the international economy, and consequently for governmental decisions.

The interpretations to this fact come from very different perspectives. For instance, the theory of the international division of labor presents a picture of how international economy works out as a result of inequality, and the use of power between countries. On the other side, there is the point of view in which the specialization and free competition are the main driving forces in the context of international commerce. As a result of this kind of confrontations, there is not an absolute truth, but there is a fact that makes this discussion to have sense. This one is the importance the global value chains have in the international realm. In this way, the discussion countries have undertaken is not a matter of the GVCs definition and consequences, but an effort made to effectively participate in this system.

In the context of economic growth, and sustainable development seeking, different considerations emerge regarding the type of industry in which exporters, importers, intermediaries, and so on should participate. These decisions originate from a huge variety of markets forces like supply and demand, international prices, and logistics chains. But these circumstances are not the only ones shaping this environment. The role the public sector plays is also crucial, not only because of its ability to lead states policies, but because the extent the social, and environmental consequences, derived from the participation in GVCs, have is at the end a matter of public concern. 

At this point, governments must decide where to invest and/or what type of investment to attract. But the question is how to coordinate some fundamental aspects like the size of the economy, the composition of exports and its position in GVCs, and the economic structure and export model (UNCTAD, 2013), in a way in which they maximize the benefits from the national economy, and the population. Should it be a process of adaption, in which macroeconomic indexes and market research decide what to produce? Or should be implemented a competitive advantage strategy that supports emergent markets, and (maybe risky) innovative initiatives? Even if these options are not mutually exclusive, governments tend to prioritize according to their goals. As GVCs are modifying the way in which the international economy works, governments must define appropriate strategies in order to respond to this phenomenon in a way that it facilitates the insertion in the system, and that also creates a better domestic scenario.