• Global value chains: yesterday, today and tomorrow


    Made in Spain, Made in the USA and even Made in China labels make less and less sense in today’s world. Since firms decided to fragment their production processes and move them to other countries, the label Made in the World probably better represents the nature of most of the manufactured goods we consume. In this article we review the past, present and future of global value chains at a time when pandemic-induced restrictions on travel and supply disruptions have brought them back into the spotlight.



    Pre Titulo
    Área geográfica
    The creation of global value chains

    he 1990s saw the beginning of a far-reaching optimisation of production processes beyond the borders of a single country. Companies decided to fragment these processes and carry them out in as many countries (in order to make the most of each country’s advantages of specialisation), giving rise to what are known as global value chains (GVCs). Several factors helped to encourage the creation of GVCs but first and foremost were the advances made in information and communication technologies (ICTs), which enabled the different production stages to be coordinated perfectly. A second factor was the reduction in trade costs, helped by the important free trade agreements reached during that decade,11 as well as by improvements in transportation, especially by air.

    In fact, GVCs have boosted international trade flows to values that were unthinkable a few decades ago: exports of goods and services as a percentage of GDP rose from around 18% in the early 1990s to levels close to 30% just before the pandemic, while the relative weight of GVCs in total trade flows went from around 40% to just over 50% in the same period (see the chart below).12 

    • 11. 1994 saw the conclusion of the largest round of multilateral trade negotiations (the Uruguay Round), in which 123 countries took part. Also in 1994, the North American Free Trade Agreement (NAFTA) was concluded. Both agreements led to a substantial reduction in tariffs worldwide: from levels of around 16% in the early 1990s to 5% today (according to World Bank data, simple averages).
    • 12. The development of GVCs was particularly dynamic between 1990 and the early 2000s, just before the outbreak of the global financial crisis. Since then, the relative importance of these chains in trade seems to have stagnated.

    The importance of global value chains in trade flows

    Last actualization: 04 May 2022 - 09:16
    The pandemic: present impact and future approaches to GVCs

    The COVID crisis has raised many doubts regarding the high degree of globalisation achieved, as well as the adequacy of GVCs. At first, in countries such as Spain, we became aware of the high external dependence (beyond the EU’s borders) of goods which, at that time, were essential.

    In a second phase, with the strong recovery in demand focusing particularly on durable goods and the disruptions in some factories due to the effects of COVID,13 we have been faced with a global supply shortage problem we had not experienced since GVCs were created. And, in this world of global manufacturing, disruption in one stage of the production chain leads to major disruptions throughout the entire process. The longer the GVC, the greater the impact (the bullwhip effect).

    Such disruptions will undoubtedly change people’s minds about GVCs. Although it is still too early to know what changes the future holds, we can suggest some strategic rethinks company directors are likely to pursue in order to increase the robustness of the production chain.

    First, the chains will probably be shorter to avoid the amplifying effect of disruptions. Secondly, they will be more redundant in key components. In other words, there will be alternatives to the production of these components. Thirdly, they will be equipped with new digital technologies that will enable them to detect chain failures early on. And, in terms of logistics, investment in inventories is likely to increase: from just in time to just in case, as stated in a recent article by the Financial Times14 (see the chart below).

    • 13. See the article «Bottlenecks: from the causes to how long they will last» in the Monthly Report of December 2021.
    • 14. See the Financial Times (December 2021). «Supply chains: companies shift from ’just in time’ to ’just in case’».

    Global value chains are likely to be shorter in order to avoid the amplifying effect of disruptions.


    However, it should be noted that these possible strategic changes, if they occur at all, may be more gradual and less far-reaching than we might have assumed after the shock of the pandemic. One of the reasons is that such changes would entail an increase in costs, with the evident impact on prices consumers would have to pay. In a globalised world, this could mean a significant loss of competitiveness compared with other countries and/or companies. Furthermore, as Harvard professor Pol Antràs has noted, the configuration of GVCs forces companies to incur large sunk costs, which leads to them being extremely rigid regarding strategic production changes.15 

    In other words, the COVID shock will indeed bring about a change in our approach to the configuration of new GVCs and may certainly lead to some rethinking of the existing chains. But, in the latter case, this rethinking might be less radical and rapid than some are predicting.

    • 15. See Antràs, P. (2020). «De-Globalisation? Global Value Chains in the Post-COVID-19 Age». National Bureau of Economic Research, no. w28115.
    The future of GVCs: plus and minus factors

    In addition to the impact of the pandemic, other factors (mostly new technologies) have the capacity to reshape GVCs and we present a brief review (see the diagram below).16


    Automation and 3D printing

    Although automation is a process that has been going on for centuries, today’s robots, equipped with artificial intelligence and at a cost that has decreased substantially over the past few decades, represent a full-fledged revolution. The improved productivity of these new robots may result in some of the manufacturing processes which had been moved to emerging countries in order to take advantage of low labour costs now returning to advanced countries. In other words, we would be shifting from an offshoring to a reshoring trend, which would entail a certain reversal in the globalisation of supply chains.

    On the other hand, 3D printing is a technology that could result in GVCs becoming shorter and, along with this, to the reshoring of part of the manufacturing activity. In fact, with this technology, it is not necessary to send physical products; all that’s required are the computer files to manufacture them! However, there is still no clear evidence in this respect. In fact, a paper published by the World Bank shows a strong increase in trade flows following the adoption of 3D technology in hearing aid production, something we would not expect with a shortening of GVCs.17 Although this is a very specific case, it does reveal some interesting effects that need to be considered. In particular, the hearing aid sector adopted 3D printing for almost all its parts when this became technologically feasible (about 10 years ago) and, since then, trade flows linked to the sector have increased by 60%. The main reason for this growth is that 3D printing has led to a huge reduction in the production cost of hearing aids and an improvement in terms of quality, resulting in a sharp increase in demand for the product. And with greater demand, international trade in hearing aids has intensified.

    • 16. Based partly on Canals, C. (2020). «Revolución tecnológica y comercio internacional 4.0». Geopolítica y Comercio en tiempos de cambio. Published by CIDOB.
    • 17. See Freund, C. L, Mulabdic, A. and Ruta, M. (2020). «Is 3D Printing a Threat to Global Trade? The Trade Effects You Didn’t Hear About». World Development Report.

    The electric car

    Another case that also warrants particular attention is that of electric cars, which have the potential to alter some of the most relevant GVCs (those of the automotive sector), as well as to considerably reduce international trade. The reason is that classic combustion-engine cars require a large variety of parts and gears that are often manufactured in different countries to maximize the competitive advantages of each location. In fact, the automotive sector is responsible for a substantial part of the world’s trade flows of intermediate goods. However, the electric car, with its much simpler mechanics (far fewer parts that are also less subject to wear and tear) could lead to a reduction in these classic intermediate flows and, consequently, to a radical change in the structure of automotive GVCs.

    The production of batteries, a key component for the new electric vehicles, will also determine the future of numerous trade flows, which in this case will focus on raw materials such as lithium, nickel and cobalt.


    Digital technologies and the emergence of new services

    The continuous evolution of ICT, hand in hand with 5G and blockchain technology, will continue to push down logistics costs and, with it, boost the trade flows of goods and services and participation in GVCs. For instance, 5G will support the development of the Internet of Things, which will enable faster and more secure tracking of shipments in the case of goods, and better connections in the exchange of services. Likewise, blockchain has the potential to greatly facilitate international payments.

    On the other hand, these digital technologies will also encourage the emergence of new products, especially services, whose organisation could be decentralised and located in different countries, creating new GVCs in the image and likeness of the chains already established for the production of manufactured goods.


    History reminds us that technological development and international trade are not independent of geopolitical developments.


    Finally, it should not be forgotten that geopolitics has always played an essential role in international trade. In this respect, the USA’s intention to «decouple» from China, especially in the field of technology, could bring about a very significant change in world trade and in how GVCs are managed, especially in the technology sector. Even more so because the US is not alone in wanting to put more distance between itself and other economies. For instance, Europe also seems willing to reduce its external dependence in some technology segments, such as semiconductors, with the European Chips Act.

    In summary, although we do not expect any radical or abrupt change in the form taken by GVCs since they tend to be relatively stable over time, we might see a change in trend in the next few years due to the various 4.0 technologies. In addition to these ongoing trends, factors such as the Coronavirus crisis will further exacerbate certain technological dynamics. However, history reminds us that technological development and international trade are not independent of geopolitical developments. And in this respect, trade-technology tensions between the US and China will play a decisive role.

    Destacado Economia y Mercados
    Destacado Analisis Sectorial
    Destacado Área Geográfica

The illiberal shift in economic policy: let the data speak!

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Álvaro Leandro
Àlex Ruiz
January 16th, 2020

There is a perception in recent years that there has been a proliferation of economic policies, and political approaches in general, that diverge from what could be called the liberal consensus. By this, we refer to a series of elements on which consensus had been reached among economists and economic policy-makers as the preferred approach for improving economic prospects (see the article «Illiberal forms of economic policy: evolution or radical change from the existing consensus?» in this same Dossier). However, in order to determine whether this perception is a reality, we must find a way to quantify this shift towards more illiberal policies as accurately as possible. It is precisely this endeavour that will be the goal of this article, which proposes an explicit measure of the illiberal shift that will allow us to explore which areas of economic policy have seen a greater departure from the liberal consensus.

Identifying and quantifying the illiberal shift

As mentioned in the previous article of this Dossier, although distinguishing a liberal economic policy from an illiberal one is feasible in theory, making such a distinction in practice is not so simple and, furthermore, ideological biases are difficult to eliminate. In order to address this challenge, one possibility is to «translate» political proposals into some form of quantitative measure. This is the exercise carried out by the economists De Bolle and Zettelmeyer (2019). This exercise allows us to obtain a numerical measure of just how liberal the election programmes were among the parties participating in elections held before and after the Great Recession of 2008-2009, across a large group of countries.1 This measure is developed on the basis of an assessment of the various economic proposals of the parties contending the elections in question, assigning each one a numerical value according to its degree of illiberalism.2 In this Dossier, we have used the information available in this exercise by De Bolle and Zettelmeyer so as to illustrate the issues that interest us, namely the way in which the illiberal shift is materialising, its causes and its effects.

Specifically, seven spheres of economic policies introduced by these economists have been used in order to «translate» the first-order principles defined in the first article of the Dossier into specific areas. This allocation is as follows:

The departure from the principle we call «competitive markets for productive factors and goods and services» is assessed by analysing the economic policy sphere known as «illiberal competition policy».

The assessment of the macroeconomic and institutional framework aimed at ensuring stability is conducted in the sphere of «macroeconomic illiberalism».

The question of integration into the global flows of goods, services and factors as a means to create prosperity is explored through four different spheres: «restrictions to international trade», «restrictions to foreign direct investment (FDI)», «restrictions to immigration» and «anti-multilateralism».

Departure from the principle of liberal supply-side policies is assessed through the sphere «illiberal industrial policy».

For each of these spheres, a measure is obtained that approximates the degree of illiberalism present in the political manifestos of the various parties in each country, weighted by each party’s share of the vote in the elections in question. Finally, averaging the results of the seven spheres in each country provides an aggregate measure of illiberalism.

Which areas explain the shift towards a more illiberal policy agenda?

We are now in a position to answer the question of how the illiberal shift has materialised. When we analyse the spheres mentioned above, a first observation is that all of them, with the exception of restrictions to FDI, have diverged away from liberalism towards illiberalism.3 The extent of this divergence is quite varied, being more apparent in the spheres of macroeconomic illiberalism and restrictions to immigration, followed some distance behind by changes in the spheres of illiberal industrial policy and restrictions to international trade. It should be noted that these spheres are central to the current orthodox consensus on economic policy, as they encompass issues such as having an adequate macroeconomic stability framework (which includes key aspects like having an independent central bank) and the assumption that integration into the global economy and financial system is key to generating prosperity.

A logical question at this point in the discussion is to try to determine the scale of these quantitative changes in the measure of illiberalism. In the absence of sufficient temporal context (unfortunately, a comprehensive history of elections is not available), what can be compared is the variation between countries, from which certain information can be extracted. Specifically, if we choose the US – a country which, historically, we can clearly associate with the liberal consensus – and we compare it with China – a state that we can qualify as illiberal without too much discussions –, the difference in the degree of aggregate illiberalism (the average of the seven spheres) is 0.9 points. Therefore, a deterioration of 0.2 points in the aggregate index and for a broad set of countries in a relatively short space of time should not be looked upon with complacency.

Advanced and emerging countries: two increasingly similar worlds at the aggregate level, but with differences depending on the sphere

The above conclusion is reinforced even more when we analyse the differences observed between advanced and emerging countries. The illiberal shift materialises with few differences between the two groups, at least at the aggregate level, such that the gap in the degree of illiberalism between advanced and emerging markets remains stable in a context of an increase in the phenomenon. However, the spheres affected are somewhat different: whereas the areas that undergo the biggest changes in more developed countries are immigration policies, anti-multilateralism and restrictions to international trade, in emerging countries the two main areas are macroeconomic illiberalism and that of industrial policy.

As for individual countries, the most illiberal countries are Russia, India, Italy, China and South Africa. With the exception of China, which has seen a significant drop in its degree of illiberalism over the period in question, all four other states are among those that have seen the biggest increase in their illiberalism. At the other end of the spectrum, the most liberal countries are, in this order, South Korea, Japan, Canada, Australia and the US. In the first three, illiberalism has fallen, while in the last two it has increased, albeit not excessively.

Ideology matters and is expressed in different spheres

When we analyse the preferences expressed in electoral programmes and their tendency to shift towards greater illiberalism, as might be expected the differences between what we will refer to as left and right, for the purposes of simplicity, are quite stark. For starters, the data suggest that parties on the left of the political spectrum tend to shift more noticeably towards illiberalism than those on the right. Here the reader could raise the possibility that right-wing parties were already more illiberal before the period studied (i.e. left-wing parties had more room to diverge from liberalism). Nevertheless, the available data suggest that there is no clear relationship between parties’ level of illiberalism and the change observed in recent years.

Not only have left-wing parties tended to shift more towards illiberalism than right-wing parties, but the two ideologies have embarked on their excursion towards illiberalism with an emphasis on different areas: whereas the left has focused on restrictions to international trade and macroeconomic illiberalism, the right has focused on restrictions to immigration and FDI.

In short, this review of the data provides an important conclusion, in addition to confirming the shift towards illiberalism taking place in economic policies: there are notable differences depending on the sphere of economic policy in question beyond the type of country and party ideology. This will be the fundamental line of investigation for determining, with reasonable accuracy, the root causes of the departure from the liberal consensus. Follow us in the next article to the heart of the study on the causes of the illiberal shift.

Álvaro Leandro and Àlex Ruiz

1. Specifically, De Bolle and Zettelmeyer (2019) analyse, for each country in the G-20, the programmes of the parties participating in elections before (typically held between 2004 and 2007) and after the Great Recession (the election following the crisis is avoided, in order to best capture more permanent preferences, such that the majority are held between 2014 and 2017). See M. De Bolle and J. Zettelmeyer (2019). «Measuring the Rise of Economic Nationalism». Working Paper 19-15. Peterson Institute.

2. The scale ranges from 1 to 5, where a 1 is allocated to clearly liberal political proposals and a 5 to clearly illiberal proposals. For illustrative purposes: in the field of competition policy, if a party proposes that cartels are illegal and that an independent authority in the field of competition is essential, this measure will be allocated a score of 1. Meanwhile, if another proposes abolishing this authority in order to foster the formation of cartels or monopolies and thus create «national champions», it will be given a score of 5.

3. In the case of restrictions to FDI, it should be mentioned that is a sphere for which only a minority of parties express their preferences, so we should not read too much into this somewhat atypical situation.



Álvaro Leandro
Àlex Ruiz
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