Upgrading and inequality in global value chains: Challenges for inclusive and sustainable development

The phenomena of globalization and fragmentation of production drive countries to face a double challenge of catching up: economic upgrading coupled with improvement in living standards. Meanwhile, insertion and upgrading within global value chains (GVCs) deeply affect national economies in multiple ways. In this paper, we explore the research agenda on the distributional outcomes of the integration of countries into GVCs, with special attention paid to developing countries. A critical review of both the existing literature on the relationship between economic and social upgrading and the methodological approaches to GVC integration and their distributional outcomes are undertaken, in order to improve understanding and to help orient policy strategies. We highlight the relevance of institutions as well as the role of governments and MNE initiatives to ensure that the achievement of sustainable economic gains are translated into social benefits. This can be attained by the reinforcement of welfare and labour institutions, the strengthening of innovation systems, and support for and densification of local chains. There is a pressing need for further research on this topic founded on accurate knowledge of metrics and indicators for analyzing the insertion of countries into GVCs as well as their distributive outcomes.