Mapping the Global Division of Labor: The Functional Specialization in GVCs

• In Event: Global Value Chains (GVCs) and Global Economic Orders

Abstract

Understanding the structure of the global economy is important as it shapes and constrains countries’ political and economic decisions. Existing studies have utilized varying levels of trade data to offer a systematic summary of the global economy and where countries are positioned in it. However, a growing number of studies point out that the deepening global production networks and internationalization of production processes mandate a new perspective on the collection and analysis of trade data. These studies emphasize the need to account for global value chains (GVCs) -- the full range of production activities by global economic actors to bring a product from its conception to its end use and beyond. GVCs highlight special interdependence between economic actors from different countries, with each actor specializing in different stages of global production. In this paper, I employ GVCs as the main unit of analysis to advance our understanding of the structure of the global economy. Specifically, I analyze the “function” that countries and industries serve in global production networks and investigate the political implications of the interdependence between functionally distinct countries. Employing Multi-regional Input-output (MRIO) table in Eora project and Wang et al. (2017)’s measures on GVC position and GVC participation, I fit a Gaussian mixture Hidden Markov model to cluster countries’ functional specializations in GVC. Using the penalized log-likelihood suggests that 6 distinct functions summarize the formation and operation of the global production networks. The paper then explores how such specializations shape countries’ political behavior, with a focus on international economic sanctions and trade disputes.

Author

• Byung Koo Kim, KDI School of Public Policy and Management