Analysing Opportunities for India in Global Value Chains in Post COVID-19 Era

Date01 August 2022
Published date01 August 2022
Subject MatterArticles
Analysing Opportunities
for India in Global Value
Chains in Post
COVID-19 Era
Nidhi Bagaria1
In recent years, trade in intermediate goods has increased manifold with the
emergence of global value chains (GVCs). China has emerged as one of the lead-
ing countries in the whole GVC network; many countries, including the USA, are
heavily dependent on China for the intermediates in the manufacturing sector.
The outbreak of COVID-19 and the subsequent lockdowns in many countries,
including China, have disrupted the supply in GVCs. This situation has led to the
search for alternative markets for intermediates for the sustainable-production
process. This study looks at how India can be an alternative avenue for the USA in
place of China in the GVC network. It investigates the extent of participation of
the countries under study in the GVCs and the gains resulting from it. The main
focus of the research is to determine the emerging opportunities for India in
GVCs, through correlating the USA industries which are vulnerable to disruption
in GVCs as caused by China to those industries of India in which India enjoys a
comparative advantage. The analysis reveals that in the ‘textiles, wearing apparel,
leather and related products’ and ‘chemicals and non-metallic mineral products’
industries, India could be a replacement of China for the USA.
JEL Codes: F10, F13, F15
Global value chains, domestic value added, foreign value added, revealed
comparative advantage
1 N. L. Dalmia College of Arts, Commerce and Science, Thane, Maharashtra, India.
Corresponding author:
Nidhi Bagaria, N. L. Dalmia College of Arts, Commerce and Science, Mira Road, Thane, Maharashtra
401107, India.
Foreign Trade Review
57(3) 261–282, 2022
© 2021 Indian Institute of
Foreign Trade
Reprints and permissions:
DOI: 10.1177/0015732520981470
262 Foreign Trade Review 57(3)
International trade in manufacturing has witnessed a paradigm shift over the last
few decades. The production process has been fragmented and has started taking
place in multiple stages, across different geographical locations. The phenomenon
whereby production takes place in various stages and these stages of production
are located across different countries is known as a global value chain (GVC). A
GVC involves vertical fragmentation of the production process, that is, parts and
components are produced in different countries and then assembled sequentially
in different countries or at a final location (Del Prete & Rungi, 2017). The frag-
mentation of the production process across countries has allowed the countries to
exploit their comparative advantages and specialise in a specific set of products
(Del Prete et al., 2018). Participation in a supply chain enhances information
flows and learning possibilities, inculcation of new business practices and
improvement in reach to more advanced technology, strengthening growth as a
result. This process is growing fast in Asia, resulting in complex GVCs (Ferrarini
& Hummels, 2014).
The emergence of GVCs has led to an increase in international trade in parts
and components. In other words, trade in intermediate inputs has increased, where
intermediate inputs are defined as inputs to the production process that have them-
selves been produced and unlike capital are used in the production of other goods
(Deardorff, 2006). Trade in intermediate inputs accounts for two-thirds of the
international trade (Johnson & Noguera, 2012). Over the past 25 years, the share
of trade in inputs among developing economies has increased by over four times
(Auboin et al., 2014).
GVCs provide opportunities for developing countries to diversify their exports
and intensify their integration into the global economy. They link workers, firms
and consumers around the world and integrate them into the global economy. For
many economies, especially the low-income economies, the ability to integrate
with GVCs is an essential condition for their development. An economy’s partici-
pation in GVCs in manufacturing sectors allows an absolute domestic value added
for exports to contribute to GDP growth (Taguchi, 2014).
GVCs have attracted considerable interest among researchers over time, and
several studies have used various methods to measure trade in value added and an
economy’s integration into GVCs (Hummels et al., 2001). In the wake of COVID-
19, various multinational enterprises currently established in China are contem-
plating shifting part of their production platform away from China to other
countries of Asia. For the USA, the potential Economic Prosperity Network alli-
ance countries are Australia, Japan, India, New Zealand, South Korea and Vietnam
(Chadha, 2020). Though India possesses manufacturing capabilities in most of the
sectors, the country’s integration into GVCs has been low (Athukorala, 2014;
Baldwin, 2011; Goldar & Banga, 2020). China has emerged as the largest gainer
of the process of production fragmentation; since the early 1990s, it has attracted
substantial investment into the manufacturing sector via GVCs, whereas India’s

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