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Production Networks and Enterprises in East Asia pp 259–288Cite as

Global Value Chains and Least Developed Countries in Asia: Cost and Capability Considerations in Cambodia and Nepal

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Part of the book series: ADB Institute Series on Development Economics ((ADBISDE))

Abstract

In today’s world, global trade increasingly involves spreading the production of a final good over firms located in several countries, with each undertaking a task in the overall process. Powerful new trade opportunities have thus arisen, including for least developed countries (LDCs) in Asia. Although such countries may otherwise lack the capabilities to export goods from modern sectors, they can obtain these through engagement with global value chains (GVCs), characterized by the vertical fragmentation of production. These tend to be led by foreign direct investment (FDI) and have more hierarchical governance structures.

Tensions exist between the comparative costs that create the incentive to unbundle and the colocation or agglomeration forces that may bind some parts of a process together. Risks for LDCs also exist; for example, producers may be locked into low stages of production and be unable to upgrade their functional position over time.

Cambodia has benefited from the expansion of formal employment opportunities through FDI-led GVC integration, but it continues to struggle with functional upgrading. Nepal, on the other hand, is in the initial stages of engaging with GVCs as well as upgrading within them. Both case studies also exhibit different economic geography considerations that influence the cost and capability of GVC integration. In both, governance capability issues regarding the ability to effectively design and implement industrial policy exist, and powerful new trade opportunities represented by GVCs could be more effectively and realistically harnessed.

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Notes

  1. 1.

    Intermediate goods trade accounts for 60 % of global trade (Elms and Low 2013). Developing countries now account for around 50 % of global trade flows. Developing economies accounted for only 34 % of world merchandise exports in 1980, but by 2011, their share had risen to 47 %, or nearly half of the total.

  2. 2.

    See Capturing the Gains. http://www.capturingthegains.org

  3. 3.

    The following subsection is adapted from Keane (2012).

  4. 4.

    See Capturing the Gains. http://www.capturingthegains.org/

  5. 5.

    This section is adapted from Keane (2015).

  6. 6.

    Cambodia became a member of the World Trade Organization in 2004. In addition to the locational advantage conferred to Cambodia because of these arrangements, others, such as Asuyama et al. (2013), posited that the 1997/98 Asian crisis also served as a push factor for investors to relocate to Cambodia, despite the coup d’état that occurred around the same time.

  7. 7.

    The Multifibre Agreement ended in 2005, but safeguards on PRC exports to the US continued in 2008 and to the EU in 2007.

  8. 8.

    This program was initially funded by the International Finance Corporation but was expected to be self-funding by 2009.

  9. 9.

    According to their estimates, employment in the sector increased 60-fold, or by 5,824.7 % from the late 1990s to 2000s; wages increased by 84.5 % over the same period.

  10. 10.

    The share of those completing primary and secondary school also increased.

  11. 11.

    This section draws on Basnett and Pandey (2014).

  12. 12.

    The survey included 482 firms. See World Bank Group. Enterprise Surveys. Survey Methodology. http://www.enterprisesurveys.org/Methodology

  13. 13.

    Such as ISO 9000, 9002, or 14000.

  14. 14.

    The law in Nepal prohibits individual landholdings above 11 bighas (about 8 hectares). Tea farmers are exempted from this.

  15. 15.

    Although since 1997, there has been a noticeable increase in the supply of hydroelectricity driven by increased investment.

  16. 16.

    Nepal has bilateral investment treaties with Finland, France, Germany, India, Mauritius, and the United Kingdom. See UNCTAD (n.d.).

  17. 17.

    See Government of Nepal, Office of the Investment Board. http://www.investmentboard.gov.np/

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Authors and Affiliations

  1. Commonwealth Secretariat, London, UK

    Jodie Keane

  2. Asian Development Bank, Papua New Guinea Resident Mission, Port Moresby, Papua New Guinea

    Yurendra Basnett

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  1. Jodie Keane
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Correspondence to Jodie Keane .

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  1. Asian Development Bank Institute, Manila, Philippines

    Ganeshan Wignaraja

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Keane, J., Basnett, Y. (2016). Global Value Chains and Least Developed Countries in Asia: Cost and Capability Considerations in Cambodia and Nepal. In: Wignaraja, G. (eds) Production Networks and Enterprises in East Asia. ADB Institute Series on Development Economics. Springer, Tokyo. https://doi.org/10.1007/978-4-431-55498-1_12

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