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Symposium 2014

Virtual Library File - Can FDI Help Developing Countries Upgrade Export Quality?

The Challenge

The Rada Plaza fire in a clothing manufacturing plant in Bangladesh gave the world a sordid picture of the global supply chain at its worst. The owner of the plant became a poster child for GVC (Globa ...

The Rada Plaza fire in a clothing manufacturing plant in Bangladesh gave the world a sordid picture of the global supply chain at its worst. The owner of the plant became a poster child for GVC (Global Value Chain) players in emerging economies—large country-based companies with resources to gather labor pools of low-skilled, poorly-paid workers who are just grateful for any job, even in the most hellish work environment.

Harding and Javorcik provide convincing evidence that increasing integration into global value chains via foreign direct investment (FDI) triggers export upgrading. They show that investment promotion leads to more inflows of FDI, which in turn allow developing countries to upgrade their export basket. This helps developing-country exports to catch up with the quality frontier. There is, however, no evidence of FDI increasing the similarity between the developing and the high-income export structure.