Identifying Intra-Commonwealth Value Chains

Methodology

This report employs a number of quantitative research methods (trade intensity measures, firm-level GVC indicators, etc.)

Research Objective

This paper explores the nature of intra-Commonwealth value chains in order to understand the global/regional interface of value chains.

Synopsis

  • The implied logic of GVCs are that firms build local and regional value chains before moving into GVCs – local and regional markets often offer less competition and firms understand these markets better
  • However, for some countries (especially LDCs) domestic capacity might be so limited that it won’t be possible to establish a local productive base, instead such countries would have to rely on FDI for necessary (financial/technical) capacity
  • There are two types of regional value chains:
    • VCs focused on regional production for regional consumption
    • Regional VCs aimed at global markets
  • Initial analysis of intra-regional trade intensity suggests that Commonwealth countries trade more in additive types of VCs (e.g. natural resource based, agro-processing, etc.)
  • Intra-regional trade in the Commonwealth is dominated by mineral fuels, machinery and manufactured goods. Certain barriers such as restrictions in financing, registration processes and discretionary enforcement of regulation can affect trade in GVCs
  • Firms with a 10% share of foreign ownership are more likely to export
  • Customs and trade regulations appears less problematic for intra-Commonwealth exporters
    • Small Island Developing States are more likely to export to other Commonwealth countries
  • Market size is a strong determinant of the volume of GVC trade
  • Countries with large markets tend to source a relatively low share of foreign inputs for their production of exports. This is because the larger the domestic market, the larger the pool of domestic intermediates to source from

Policy Recommendations

  • These preliminary results call for more nuanced approaches regarding entering and upgrading within GVCs, particularly for Commonwealth small states.
  • Paper seen as first step towards developing policy recommendations.