Impact of New Technologies on Global Value Chains (GVCs) in Developing Countries: Critical Essay

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Impact of New Technologies on Global Value Chains (GVCs) in Developing Countries: Critical Essay

When examining the effects of new technologies on global value chains (GVCs), it is important to understand both the positive and negative impacts that these factors have had on economic development in developing countries. Because of the very different economic conditions in these developing countries as opposed to more developed countries, changes brought about by new technologies, as well as ever-increasing GVCs, different economies have had very different experiences with regard to economic development. In his paper, Dani Rodrick goes into some detail concerning the nature of these challenges to development in developing economies.

When it comes to new technologies and their effect on global value chains with respect to developing economies, the positive impacts of the changes are frequently referenced. It is these positive impacts, from the perspective of the developing economies, that make the prospect of new technologies being introduced into these economies so attractive. These technologies have succeeded in changing the way in which the people of these countries have been able to access and participate in the global economy, thereby contributing to their further economic development. In his paper, Dani Rodrik mentions that the inception of mobile phone technology in developing countries has opened up numerous opportunities. This new technology has allowed fishermen in Africa to observe local markets and allowed others to transfer from areas such as subsistence agriculture into different industries through mobile banking (Rodrik, p.2, 2018). Giving less developed economies greater access to the global value chains and allowing them to improve their ability to compete is one of the key ways that new technologies can help support developing economies and help them to catch up to more developed countries. A study on the impact of mobile money on the developing country – Kenya – found that mobile money became accessible to millions of people and lifted as many as 194,000 Kenyans out of debt (Suri and Jack, 2016). The diffusion of mobile phones and mobile money into GVCs is one of several positive impacts that new technology has had on the level of development in developing economies. However, there are several concerns regarding how these changes may affect developing economies in the future.

When new technologies are introduced into the global value chains, it is not only the addition of new features of the economy that need to be considered but rather how these factors will affect those that already exist. This is crucial as not all technological improvements are uniformly beneficial in all circumstances. While GVCs give developing economies increased access to the global economy, this may not always remain the same. One of the key opportunities that new technologies have given to the global economy is the ability to automate industries. As previously mentioned, automation involves delegating certain tasks to machines and/or computers to reduce costs, increase productivity, and encourage consistent quality. These benefits are ideal for any business as they increase profits, however; this does not necessarily mean that developing economies will also be positively affected by automation. As Dani Rodrick points out (p.2, 2018), one of the key resources that most, if not all, developing and/or low-income economies possess is an abundance of unskilled labour. What this means is that they have a relatively inexhaustible supply of potential workers that they can use to fill numerous jobs that require little to no training, such as basic assembly jobs, at a very low cost (typically much less than in developed economies). This made labour-intensive production an ideal industry in which to invest in these developing economies, as they were almost immune to the supply side bottlenecks (Rodrick, p.2, 2018) that developed countries have to deal with. Developed economies have been exploiting this abundance of cheap labour by moving manufacturing jobs offshore, however; automation threatens to end this practice. Rodrick is concerned that with automation being comparatively cheaper and new technologies favouring higher skill sets, developing countries may lose their one advantage (Rodrick, p.14, 2018). If this concern is well founded, then there could indeed be a risk to the future development of these developing economies if they become less attractive to foreign companies. There does appear to be some evidence to suggest that the introduction of these new technologies into the global value chains can indeed hurt these countries. According to a report by the World Trade Organization, a number of countries have been automating production and moving or keeping production within their countries. According to the report, companies in the United States, Germany and China have in recent years been investing in new domestic factories that are largely automated (World Trade Organization, p.93, 2019). This means fewer jobs being outsourced to developing economies, thereby limiting their received benefits from GVCs. Also, it has been pointed out that as a result of automation, 3D printing, and other cost-saving technologies, the labour focus is now being shifted from less skilled workers to robots (the International Bank for Reconstruction and Development/the World Bank, 2019). This means that the jobs that will still exist for workers in these developing economies may exclude low-skilled workers. From what we have discussed here, it is clear that Dani Rodrik’s concerns about new technologies in the GVC could be justified.

There are of course other potential impacts to be considered, regarding the effects of these technologies on the developing world. When considering the effect of the GVCs on employment, it is not only the number of jobs available but also the wages that these jobs come with. According to Ben Shepherd (p.2, 2013), while there have been increases in wages for workers, this increase is largely given to skilled labour, thereby creating a greater wage inequality between skilled and unskilled labour. This is problematic because the amount of highly skilled labour in these countries is far lower than the amount of unskilled labour, so the positive impacts of the jobs that are created in these countries are only accessible to a small portion of the available workforce. This issue can at least be partially contributed to the inception of new technologies into these economies, which shift the demand for labour in favour of highly skilled workers (Ben Shepherd p.19, 2013). While highly skilled workers clearly need employment as well, the problem is that if these countries cant employ one of their most abundant resources (the large numbers of unskilled labourers), then it may become more difficult for these economies to develop. With relatively higher wages going to highly skilled workers, low-skilled workers may well be left behind.

From what we have discussed here, it is clear that the impact of new technologies on GVCs is not necessarily uniformly positive for developing economies. There is a real risk of low-skilled workers being disadvantaged by the relative cost-effectiveness of automation and the increased demand for higher-skilled labour. This demonstrates that economies need to make sure they consider the impact that these new technologies will have when considering introducing new technologies into the global value chains.

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