Graphic by Naveen Kumar Saini/Mint
Graphic by Naveen Kumar Saini/Mint

Is globalization slowing down?

The proportion of foreign value added in gross exports has been slowing down in recent years

Global value chains refer to global trade that has multiple production stages located in different countries. The process is part and parcel of globalization, in which specific regions or countries specialize in the production of parts or components of a final product. The accompanying chart, from the Bank for International Settlements’ annual report, shows the percentage of foreign value added in exports, an indicator of the level of such global value chains and of the globalization of production.

The chart shows how the proportion of foreign value added in gross exports has been slowing down in recent years. Perhaps one reason is increasing vertical specialization in China. An International Monetary Fund paper titled ‘The Global Trade Slowdown: Cyclical or Structural?’ by Cristina Constantinescu, Aaditya Mattoo and Michele Ruta in January 2015 concluded: “We find evidence that a slower pace of expansion of global supply chains is an important determinant of the trade slowdown."

Others have pointed out that increases in automation could lead to shortening of global value chains. Needless to say, such a trend will have serious implications for emerging economies seeking to plug into global circuits of trade.

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