GVCs

Global value chains (GVCs) describe the full range of activities that firms and workers perform to bring a product from idea to consumer, typically distributed across multiple countries. GVCs cover design, production, marketing, logistics, and after-sales service, with value added occurring at different stages and in different locations. The structure of a GVC is influenced by corporate governance arrangements, where lead firms coordinate, finance, and set standards, often through contracts and supplier networks. Specialization, comparative advantages, trade liberalization, and advances in information technology have enabled fragmented production and cross-border networks.

Measurement and concepts used to study GVCs include backward linkages (inputs imported from other countries) and forward linkages (outputs used as inputs elsewhere). Researchers employ input-output tables and trade-in-value-added approaches to estimate domestic value added and to assess a country’s participation in global production networks.

Benefits of GVC participation include access to larger markets, technology transfer, productivity gains, and diversification of risk. Costs can include exposure to external shocks, currency fluctuations, and regulatory compliance burdens. Suppliers in lower-cost locations may face pressure from lead firms on prices and standards, raising concerns about labor and environmental conditions.

Geographic and industry patterns show GVCs are highly concentrated in East Asia, Europe, and North America, with growing diversification to other regions. Industry networks such as automotive, electronics, and apparel feature components produced across several countries before final assembly, illustrating the fragmented nature of modern production.

Policy responses emphasize resilience through supplier diversification, upgrading capabilities, and investment in logistics and digital infrastructure, while maintaining open trade. Debates continue on reshoring versus offshoring and on improving governance, sustainability, and labor standards within GVCs.