Roads

Analysis

Getting connected

Global supply chains and the path to inclusive growth

The evolving global trade landscape offers a huge opportunity for developing and emerging countries to gain greater access to the global economy and achieve sustainable and inclusive growth. But to do so, these economies need to adapt to the new landscape by increasing their focus on linking with global and regional supply chains managed by multi-nationals, attracting much greater levels of direct foreign investment to their Small and Medium Enterprises (SMEs), which are the main players in this process. Hence, policymakers must prioritize supply chain integration by implementing trade facilitation and logistics reforms that will reduce transaction costs behind the border, at the border, and across the border.¹

Close link between trade policy and global supply chains

Unlike macro level tariff issues, which are easily identifiable by most trade economists, familiarity with micro supply chain related issues regarding various aspects of trade, particular operations and processes on the ground, and specifics of supply chain organization, requires a deep engagement with business. And yet the majority of trade economists focuses on macro level issues and is unaware of the micro level details that have a huge impact on transaction costs, which ultimately informs business decisions.

On the other hand, most supply chain professionals tend to be limited by their lack of knowledge of the wider world economic policymaking and its relation to the day to day micro level challenges they face. This limitation prevents them from seeking holistic policy intervention, prioritizing instead short-term local solutions that may in fact ‘break’ supply chains by introducing discontinuity and negatively affecting reliability.2

What is needed is a marriage of such expertise. Trade economists require exposure to micro-level details and supply chain professionals must gain a better sense of the wider issues of economic policy making and theory. With both sides working together, there is potential to provide real solutions to the trade facilitation and related transaction costs problems inhibiting supply chain development and, in turn, inclusive growth.

1 Roy, Jayanta. (2013, March 25). Time to scrap the annual trade policy. Business Standard. Available at: http://www.business-standard.com/article/opinion/time-to-scrap-the-annual-trade-policy-113032500487_1.html
2 Hoekman, Bernand and Selina Jackson (2013). “Reinvigorating the trade policy agenda: Think supply chain!”. VoxEU. Available at: http://www.voxeu.org/article/reinvigorating-trade-policy-agenda-think-supply-chain

Getting connected: Global supply chains and the path to inclusive growth

Differences in global supply chain connectivity, caused by variances in the quality of trade and business facilitation, will explain much of the difference between fast growing regions and laggards.

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