Maldives under the National Development Plan 2019-2023 plans to transform the country to a prosperous, socially inclusive, climate resilient, equitable and connected island nation by providing access to social services and economic opportunities, promoting social justice, ensuring good governance, safeguarding environmental sustainability and respecting human rights. As a country that is on the verge of graduating to a high-income nation and given the country’s strategic geographical location in one of the densesttrade routesin the world, there are huge opportunities within the Global Value Chains (GVC) that may untap new areas of competitiveness for the short to medium term.
In the past, the precondition of the competitiveness in a country requiredhuge investments and transformation, largely focused on the structural transformation of the public spheres of the economy. However, in the highly globalized world that we live in today, such preconditions can be accelerated, reduced, shared or even avoided, as globalization has brought about rapid progress in technology, capital mobility and the creation of common global standards, as well as trade liberalization.
As a result, countries do not necessarily need to address all market imperfections through structural transformation but rather can focus on areas with the highest comparative advantage. The most effective way to successfully achieve this in many countries has been to plug into the global value chains. An economy that is integrated with GVCs will be able to create jobs and achieve broad-based development of the population as well as the development of activities involved in the production of global-level supply, distribution and post-sales efforts. Similarly, from the market perspective, plugging into the GVC increases income in a more productive and sustainable manner while increasing exports and income for that particular economy.
According the World Bank Report “Pathways to Better Jobs in IDA Countries” (2018),the world’s labor force will grow by 620 million people from 2020 to 2035, and 38 percent will be in South Asia. In addition, the private sector will create nine out of ten jobs in developing countries. Therefore, on the basis of this trend, the inclusivecompetitiveness of an economy that increases its exports by integrating into GVCs should create jobs in the private sector, which would have a greater impact on reducing poverty than other forms of direct financial assistance. As the world moves towards the fourth industrial revolution with extreme levels of automation and connectivity, it could also potentially change the course of economic development and the distribution of wealth. For this reason, conventional development methods would only be effectiveif dictated by the ever-changingmarket or private sector, depending on the needs of the Fourth Industrial Revolution.
Many highly integrated countries on the global value chain recognize the importance of creating productive linkages with other sectors of the economy at the national, regional and international levels, as key drivers of successful economic development. By connecting to GVCs, the productive link not only promotes technological progress, but also offers the potential to improve productivity. The fragmentation of production in different parts of the world also allows countries to participate in GVCs at different stages depending on the level of technological adaptation, the different levels of industrialization, the skills of the workforce and the situation.As a result, GVCs offer countries the opportunity to adopt a learning experience for their economies and to play a leading role in technology adoption.
Global value chains also promote stronger linkages upstream and downstream with the rest of the economy, which translates into knowledge and technology spillovers to other sectors. At the same time, GVCs also reduce the risk of market shocks for countries, as trade in intermediate goods is less influenced by end-market prices.
Integration into global value chains allows countries to remain in relevant sectors that are market-driven and at the same time to be part of an interdependent global production network. From the point of view of the market or the private sector, integration into GVCs strengthens export growth, which is very important for promoting sustainable economic progress. Many empirical studies have shown that firms linked to the global economy through exports or foreign direct investment (FDI) are more productive than firms serving only the domestic market. The productivity gains of GVCs will increase the competitiveness of enterprises and, at the same time, will be accompanied by wage increases, upgrading of skills and technology transfer. Firms and export-intensive and FDI-related sectors generally enjoy a substantial wage premium and have higher average labor productivity than domestic firms.
This report contains the preliminary global value chain analysis for the republic of Maldives.
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