Question

The Ontario Ministry of Economic Development is interested in strengthening the value chain of Chinese-Canadian foods in the GTA. Based on this premise, you have been employed to explain and develop an approach that can be used to estimate the demand for Chinese foods and their preferences. Please explain how you will address this task.

Answer 1

There are different ways to analyze the global economy.
One is to view it through the lens of growth and struc-
tural change in individual economies, developed and
developing. A second is to use the lens of global value
chains (GVCs), the complex network structure of flows of goods,
services, capital and technology across national borders. Both are
useful and they are complementary to one another.
The 2019 edition of the GVC Development Report is enor-
mously valuable, in part because it captures the underlying tech-
nological and economic forces that are transforming the patterns
of global interconnectedness.
The report notes that there are two megatrends in process.
One is the growth of developing countries, the expansion of the
middle classes in them, and the shift in the share of global purchas-
ing power toward the developing economies. By itself this would
produce major shifts in the characteristics of GVCs. Regional trade
rises as a share, especially in Asia. More production now goes to
rapidly growing domestic markets in developing countries instead
of being exported outside the region. Trade is shifting from a
stark version of comparative advantage based on differential labor
costs and labor arbitrage, toward something that more closely
resembles the intra-industry model of trade among developed
economies based on product and technological differentiation. Of
course, that process is far from complete, and there remain ear-
ly-stage, and relatively low-income developing countries for which
the growth models will continue to depend on accessing global
demand via labor-intensive, process-oriented manufacturing.
The second megatrend is the digitization of the underpinnings
of entire economies and, by implication, GVCs and the global
economy. This too is a process that is underway and one that has
much further to go. It is difficult if not impossible to accurately pre-
dict the endpoint, if there is one. But there are important insights
that the second GVC report highlights.
One clear message is that as economies move to being built
in part on digital foundations, trade, GVCs and digital technology
cannot be separated and dealt with as independent trends and
forces.
For early-stage developing countries, automation will at some
point displace the labor-intensive technologies that underpinned
the earlier Asian growth stories. That shift will occur differentially
by sector, with textiles and more generally the sewing trades
being the least vulnerable in the short run. The message is two-
fold: don’t give up on the traditional growth model but move rap-
idly to expand internet capability and the digital underpinnings
and infrastructure of the economy.
The mobile-internet- and platform-centered open ecosystems,
along with mobile payment systems and enabled financial services,
have the potential to support inclusive growth patterns and expand
the channels, opportunities, and accessible markets for SMEs. Data
from China’s domestic economy experience supports these trends.
Exploiting the international potential of these platforms to expand
trade and access for SMEs requires investment and infrastructure in
developing countries, but also new trade regimes that increase the
openness of the ecosystems. In other words, the potential to sup-
port growth and employment in SMEs via access to global markets
on digital platforms is as yet largely unexploited.
The report supports and adds to a broad range of studies that
suggest that the combination of trade and various aspects of digital
transformation has contributed to job and income polarization, and
that vigorous policies (by government and business) are required to
restore more inclusiveness to the observed growth patterns. This is
especially true in developed economies. Key policies are those that
support the workforce in transitions as a growing range of tasks are
automated and jobs shift toward a mix of tasks that are complemen-
tary to the machines.
In developing countries, especially those in the middle-income
category, while the pressures on the structure of jobs and employ-
ment are similar to developed economies, the net impact of dig-
ital technology appears to have been positive for growth and for
employment.
There is an important caution in the report. The long-run goal
of development is of course to increase productivity, employment
and incomes. But in the context of GVCs, attempts to artificially
increase the domestic value-added content of exports, ahead
of the technological deepening of the economy, are likely to be
counterproductive.
At a more macro level, while trade continues to grow, especially
in services (where there remain challenging measurement prob-
lems) the declines in trade relative to global GDP and the rising
share of intraregional trade are understood to be largely the natural
consequences of economic development and the early stages of
the digital transformation of economies, and not mainly the result
of trade frictions and resistance to globalization engendered by
the adverse distributional features of growth patterns.
The second GVC report is carefully researched and deep in
insights. It does an admirable job of capturing the complexity of
a global economy in rapid transition, and especially of bringing
into focus the major forces and trends and their impacts.