Global Value Chains in the Pacific Island Countries: Patterns and Structure

ADBIWorkingPaperSeries GLOBALVALUECHAINSINTHEPACIFICISLANDCOUNTRIES:PATTERNSANDSTRUCTURE UpalatKorwatanasakul No.1382 May2023 AsianDevelopmentBankInstitute UpalatKorwatanasakulisanassociateprofessorattheSchoolofSocialSciences,WasedaUniversity. TheviewsexpressedinthispaperaretheviewsoftheauthoranddonotnecessarilyreflecttheviewsorpoliciesofADBI,ADB,itsBoardofDirectors,orthegovernmentstheyrepresent.ADBIdoesnotguaranteetheaccuracyofthedataincludedinthispaperandacceptsnoresponsibilityforanyconsequencesoftheiruse.TerminologyusedmaynotnecessarilybeconsistentwithADBofficialterms. Discussionpapersaresubjecttoformalrevisionandcorrectionbeforetheyarefinalizedandconsideredpublished. TheWorkingPaperseriesisacontinuationoftheformerlynamedDiscussionPaperseries;thenumberingofthepaperscontinuedwithoutinterruptionorchange.ADBI’sworkingpapersreflectinitialideasonatopicandarepostedonlinefordiscussion.Someworkingpapersmaydevelopintootherformsofpublication. TheAsianDevelopmentBankrefersto“China”asthePeople’sRepublicofChina.Suggestedcitation: Korwatanasakul,U.2023.GlobalValueChainsinthePacificIslandCountries:PatternsandStructure.ADBIWorkingPaper1382.Tokyo:AsianDevelopmentBankInstitute.Available:https://doi.org/10.56506/XDZZ8844 Pleasecontacttheauthorsforinformationaboutthispaper.Email:korwatanasakul@aoni.waseda.jp AsianDevelopmentBankInstituteKasumigasekiBuilding,8thFloor3-2-5Kasumigaseki,Chiyoda-ku Tokyo100-6008,Japan Tel:+81-3-3593-5500 Fax:+81-3-3593-5571 URL:www.adbi.orgE-mail:info@adbi.org ©2023AsianDevelopmentBankInstitute Abstract Thisstudyinvestigatesthepatternsofglobalvaluechain(GVC)participationofPacificislandcountries(PICs)atthecountry,industry,andfirmlevels,utilizingUNCTAD-EoraGVCdata(1999–2018)andtheWorldBank’sEnterpriseSurveydata(2009and2015).Italsousesthesurveydatatoexaminetherelationshipbetweenfirmandcountrycharacteristicsandfirm-levelGVCparticipation.Atthecountrylevel,thestudyfoundalimitedroleofthePICsinglobalandregionalproductionnetworks,hinderingforeigntechnologicalandknowledgetransfer,industrialization,andeconomicdevelopment,while,attheindustrylevel,thePICsgenerallyengageinlow-value-addedactivities.Thefirm-levelanalysisrevealsthatthePICs’domesticfirms,particularlySMEs,facedifficultiesjoiningvaluechains.Althoughfirmcharacteristics,i.e.,laborproductivityandqualitycertification,areessentialforfirmstoengageinGVCsinitially,theyareinsufficienttodeepentheGVCparticipationlevel.Theanalysisalsoemphasizesthesignificanceofmacro-levelbusiness-enablingenvironmentfactors,includinggoodgovernance,tradeopenness,andforeigndirectinvestment. Keywords:globalvaluechain,islandness,Pacificisland,productionnetwork,tradeinvalueadded JELClassification:F13,F14,O24 Contents 1.INTRODUCTION1 2.COUNTRY-LEVELANALYSIS2 3.INDUSTRY-LEVELANALYSIS8 4.FIRM-LEVELANALYSIS11 4.1PatternsandStructureofGVCParticipation11 4.2GVC-FirmCharacteristics13 5.CONCLUSION16 REFERENCES18 APPENDIX21 1.INTRODUCTION ThePacificIslandcountries(PICs)faceseveralissuesintheirquestforeconomicandsustainabledevelopmentduetotheircharacteristicof“islandness,”i.e.,economicandgeographicalsmallness,remoteness,anddispersion(e.g.,JuswantoandAli2016;Malua2003;UNESCAP2006;WorldBank2021).Smalldomesticmarketsconstraintheireconomicactivitiesand,inturn,reducethepossibilityofrealizingeconomiesofscale,specialization,andindustrialization(KumarandStauvermann2021).Moreover,remotenessanddispersionimplyhightransportationand,inturn,productioncosts,whilesmallnessindicatesasmalldomesticmarketsizeandahurdletoovercomeinrealizingeconomiesofscale.Together,thecharacteristicsofislandnessmaketheregionunattractivetoforeigndirectinvestment(FDI),posingchallengestothePICsinjoiningglobalvaluechains(GVCs).WithoutFDIandGVCparticipation,thePICs’domesticfirmsandindustriesloseseveralopportunities,including:1)enhancementofcapabilitiesandcompetitiveness;2)improvementofproductquality;3)financialstability;and4)marketexpansion(KorwatanasakulandPaweenawat2021).Consequently,themanufacturingsectorisunderdeveloped,andthePICshavebecomedetachedfromtheglobalmarketandvaluechains. EventhoughparticipationinGVCsissignificantforeconomicdevelopment(e.g.,KorwatanasakulandBaek2021;Korwatanasakul,Baek,andMajoe2022),thereisverylittlestand-aloneliteratureregardingGVCsinthePICs.MostdiscussionsareinthecontextofAsiaandthePacificand,inturn,offerthinanalysesandpolicyimplicationsthatmaynotbespecifictothePICs’context.Ontheonehand,theliteratureprovidesmacro-leveldescriptiveanalysesofthePICs’GVCs,coveringissuessuchastheimportanceoftheservicessectorinGVCs(Anukoonwattaka,Mikic,andZhang2017),thebenefitsandthedriversofGVCparticipation(Sawadaetal.2020),andconnectivityandGVCs(Shepherd2016;Vickers,Keane,andPalit2019).Ontheotherhand,Chand(2017)andAngelucciandConforti(2010)employcasestudiesatthefirmandindustrylevelstoexaminethecharacteristicsofgarmentandfoodvaluechainsinFijiandVanuatu. Amongthelimitedamountofliterature,theexistingliteratureisalmostexclusivelylimitedtograyliterature,suchasreportsbyinternationalorganizations(e.g.,theAsianDevelopmentBank