Paper short abstract:

If the current popularity of the GVC approach in the international development community is to be used to contribute to a true paradigm shift, there is a need to put more emphasis on the importance of the domestic integration of emerging GVC-oriented industries in developing countries.

Paper long abstract:

It has been argued that the proliferation of the GVC approach in the international development community has the potential to contribute to the emergence of a more heterodox post-Washington consensus. Others have criticized that its selective application has allowed for the continuation of business-as-usual. I argue that to not squander the opportunity that the approach’s popularity provides, there is a need to put more emphasis on the importance of the domestic integration of emerging GVC-oriented industries in developing countries, ensured through proactive state intervention. When industrialization strategies are solely focused on linking up to and upgrading within GVCs, there is a risk that such strategies miss out on another key aspect of economic development, i.e. the thickening of the industrial structure of the domestic economy. In this paper, I revisit some of the key arguments of the structuralist development economists. I go on to show that while the East-Asian catch-up experience was certainly built on successful export industries, the domestic integration of these export industries and associated increases in domestic intermediate demand were of equal importance. Reflecting on some more recent contributions from the GVC literature that make similar points, I show that a focus on the domestic integration of emerging industries and on the technological capabilities of local firms in developing countries provides a powerful conceptual addition to the GVC framework that can contribute to a real paradigm shift beyond the over-emphasis on external economic integration. I use the case study of the automotive GVC to illustrate my points.