Global Value Chains (GVCs) and Global Economic Orders

Session Submission Type: Full Paper Panel

Session Description

How do global value chains (GVCs) transform global economic orders? GVCs refer to a globally fragmented production process, which creates a production network with interdependence and competition. With a complex level of connectedness among firms and across countries, we are witnessing an ever-changing global economic landscape that theories based on traditional forms of trade cannot fully capture. This panel explores the structure of this globally fragmented production process and examines how GVCs reshape the incentives and institutions of the global economic architecture from the perspectives of trade, investment, and monetary policy.

Specifically, the papers by Laaker, Kim, and Ge focus on how GVCs shape incentives and institutions. Laaker shows that GVCs shape firms’ preferences over a core policy provision under the preferential trade agreement (PTA): the rules of origin (RoO). He finds that the political cleavage over the design of RoO lies between large firms within the same industry, which challenges the traditional firm-based model where the cleavage lies between large and small firms. Kim explores countries’ specialization in this fragmented production chain using the mixture model and finds 6 patterns of GVC engagement, based on which he examines how states’ distinct functions in GVCs shape states’ involvement in economic sanctions and trade disputes. Ge argues that GVCs facilitate international investment by mitigating the credible commitment problem between the host government and foreign investors, which makes the contractural forms of asset protection like bilateral investment treaties redundant and leads to the decline of this investment regime. With a focus on economic consequences, the papers by Razeq and Weldzius examine the interaction between GVCs and different economic regimes. Razeq shows that firms in countries with deeper PTAs experienced less decline in exports after the GVC disruption due to COVID-19, which is especially true for firms with deeper GVC integration. Weldzius revisits an inconclusive debate about the effect of GVCs on exchange rate elasticity, which updates the traditional argument about how trade responds to exchange rate fluctuation in the era of global production. Altogether, these papers uncover the multifaceted roles that GVCs play in the transformation of global economic orders.

Sub Unit

• Division 16: International Political Economy

Individual Presentations

• Obsolescent Treaties: GVCs and the Termination of Bilateral Investment Treaties - Zoe Ge, IE University

• Mapping the Global Division of Labor: The Functional Specialization in GVCs - Byung Koo Kim, KDI School of Public Policy and Management

• Political Cleavages over GVCs: Rules of Origin and Preferential Liberalization - Dillon Laaker, University of Wisconsin, Madison

• Deep Trade Integration and the Resilience of GVC Engagement in Uncertain Times - Zarlasht M. Razeq, Princeton University

• Global Value Chains, Depreciations, and Exports - Ryan M. Weldzius, Villanova University

Chair

• Judith Lynn Goldstein Stanford University

Discussants

• Ryan M. Weldzius Villanova University

• Timm Betz LMU Munich