Global production sharing and gains from manufacturing exports: do linkages matter?
Wannaphong Durongkaveroj (Australian National University)
Paper short abstract:
This paper has examined the relationship between domestic linkages and three key indicators of the developmental implications of export orientation. The results cast doubt on the validity of domestic linkage to policy guidance in the era of global value chains.
Paper long abstract:
Is the conventional approach to industrial policy based on inter-industry linkages, which was developed during the era of import substitution industrialization, still relevant in this era of economic globalization? The paper addresses this issue first revisiting the conventional case for using industry linkages as policy guidance and then undertaking an input-output analysis of the manufacturing industry in Thailand. The findings suggest that, in a context where global production sharing (international fragmentation of production) is the key driver of global integration of domestic manufacturing, backward linkages have no significant correlation with net-export earnings, employment generation, and the share of wages in industrial value added. Therefore, an emphasis on industries with strong linkage (key sectors) will run counter the core of economic development. Policy makers should not weight heavily on domestic linkage in identifying sector priority. In the period of global production sharing, country can specialize in specific task and gains from export. Industry can still grow, take the advantage of the economy of scale and hire several thousands of worker. In conclusion, participation in global production networks can help generate employment which is a key to poverty reduction.
- Transnational political economies of development