1.

Critically discuss the usefulness of neoclassical growth theories for explaining regional
development.
2. Explain how Global Value Chains and Production Networks (GVC / GPN) impact
inequalities in the global south. Give at least two illustrative examples.

Smith (2015)

(Hughes et al., 2015)

GVCs and GPNs are mid range theories that are at the core of explaining uneven development in
the globalized economy. GVCs and GPNs have several positive impacts on inequalities in the
global south and have many negative impacts as well. Some examples that really show the
impacts of GVCs and GPNs are example 1 and example2.

The positive impacts of GVCs and GPNS are the new opportunities they bring to developing
countries in terms of market access and jobs and knowledge transfer. GVCs and GPNs can create
many jobs in the global south, and this can help economic growth and reduce poverty. GVCs and
GPNs also create new opportunities for countries in the global south to access global markets
and this allows for participation in global trade networks and this can open up many new
opportunities for firms in the global south. Another positive impact is knowledge transfer,
because GVCs bring new technologies and production methods to the global south and this helps
promote skills acquisition and industrial development and can help these developing countries
enhance competitiveness.

The negative impacts of GVCs and GPNs are the unequal distribution of profits, regional
divergence, and a race to the bottom. GVCs and GPNs often don’t equally distribute the profits,
and the value capture is not evenly distributed amongst everyone that is a part of the
GVCs/GPNs. This causes income inequality because high-value stages of productions that are
controlled by MNEs in the global north capture most of the profits generated along the
GVCs/GPNs and lower-value stages of production that happen in the global south have lower
wages and less benefits for the workers despite their contributions to the overall GVC/GPN.
Another negative impact of GVCs and GPNs is that they often like to concentrate production
activities in the Global south to the areas with the lowest labor costs and most favorable
regulatory environments. This can lead to regional divergence, countries that are chosen to host
production facilities experience economic growth and development while other countries are left
behind and this widens economic disparities. Another negative effect of GVCs and GPNs is that
it can cause a race to the bottom, where countries in the global south compete with each other to
have the lowest regulatory standards in order to attract foreign production and processing
industries and this decreases labor standards and environmental protections.
A country that illustrates how GVCs and GPNs impact inequality in the global south is Tunisia.
GVCs and GPNs entered Tunisia through strategic state policies, foreign investments, and
international trade agreements. H

Global Value Chains

● Based on the observation that regions develop differently, acknowledges global
interregional inequalities
● Strong focus on firms (Multinational enterprises (MNES)/Lead firms)
● Integration into GVCs is seens as desirable strategy for economic growth
● Factors in GVCs to social upgrade to decent work
○ Establish measurable standards throughout value chains
○ Create enabling rights
○ Foster community development
● GVCs are constitutive of global inequalities
● GVC/GPN integration has caused uneven development in many remote areas, peripheries
● Value Chain: all activities that firms and workers carry out to bring a product from its
conception to its end and beyond
● Governance is a core mechanism to exercise power in value chains
● Bargaining power in private chain governance: power mainly resides with lead firm
● Race to bottom in developing countries
○ Firm's strategy to maximize value capture from trade liberalization in
globalization
○ Government drive deregulation of business environment to attract firms
○ Race to the lowest regulatory standards to attract production/processing industries
○ Lowest point on smiling curve
● Types of coordination in private governance: market, modular, relational, captive,
hierarchical
● Power in GVCs: firm to firm bargaining power, demonstrative power, institutional power,
constitutive power
● Power in value chinese determines economic development
● Limited value capture at local level

Global Production Networks

● Complex intra-, inter, and extra- firm networks involved in any economic activity
● Emerged from GVC critiques: chain implies linear understanding of adding stages,
neglects spatial embeddedness, endogenous factors, regional assets, firm-centrism
● Consists of focal firms (firms that consistently operate value adding processes on both
sides of the focal point within a chain, ex: both in production and in
marketing/distribution), subsidiaries (company that is more than 50% owned by a parent
company), suppliers, customers
● Explanatory variables as causal mechanisms/Competitive Dynamics:
○ Cost-capability ratio: ratio between costs and a firm’s capacity
○ Market imperatives: maximize the value capture through access to and even
domination of the market
○ Financial discipline: pressures to create value for shareholders through synergy
(concept that the value and performance of two companies combined will be
greater than the sum of the separate individual parts) and new products/markets
○ Risk environment: uncertain market environment when financial pressures affect
both firm and non-firm actors, leading to various firm strategies
● GPN understanding of value: monetary surplus value, economic rent (excess payment
made to or for a factor of production over and above the amount expected by its owner)
○ Value creation: process of enhancing value of inputs
○ Value enhancement: increase in economic return derived from a product/service,
resulting from value adding activities
○ Value capture: share of value that is maintained at a specific step in the production
(value added for a region or firm), depends on the ability/power to benefit from
regional assets
● GPN theory: power seen as agency to determine GPN configurations
○ Corporate power: private sector/ lead firms
○ Collective power: civil society movements
○ Institutional power: public-sector stakeholders
○ 3 market asymmetries: market (corporate oligarchies dominate), political, social
(prevailing inequality)
● Actor-specific strategies
○ Intra-firm coordination
○ Intra-firm control
○ Inter-firm partnering
○ Extra-firm bargaining
● Competitive dynamics and actor-specific strategies affects trajectories of value capture,
enhancement, retention and this all effects regional development
● Mid-range theories: GPN/GVC
○ What? Uneven development of places linked to globalized sectors
 ○ Where? Regional development linked to the coupling of a specific place with a
specific GPN segment
○ How and why?
■ Mechanisms of strategic coupling
■ Strategic coupling as explanatory process in regional development
■ Competitive dynamics as explanatory variables
○ Inequality outcomes and policies
■ Uneven value capture and distribution across production networks
■ Smile curve of upgrading and downgrading
■ Land grabbing
■ Resource exploitation
■ Value capture differs across space and is linked to regional upgrading and
growth or decline and exploitation

Brainstorming
● YARA, Norwegian chemical fertilizer firm
○ whose governance of the fertilizer value chain increasingly relies on a strategy of
acquiring intangible assets
○ entanglements of GVCs and global wealth chains
○ YARA uses intangible assets to elevate fertilizer from a bulk commodity to a
differentiated product
○ achieved by forging public–private partnerships and links with government
agencies (institutional power), establishing demonstration farm plots in
smallholder communities (demonstrative power) and normalizing synthetic
fertilizer practices as reflective of ‘modern’ farming (constitutive power)
○ the intangible assets that underlie YARA's ability to transform itself from a
commodity input supplier to a knowledge-intensive lead firm is increasing the
company's bargaining power in ways that suggest the ‘gradual monopolization of
the fertilizer market’
○ the implications are worrisome for farmers in Tanzania and elsewhere in the
Global South—as they may find themselves squeezed between powerful global
buyers of agricultural outputs on the one hand, and a powerful global supplier of
agricultural inputs on the other