Global Value Chains in the Pacific Island Countries: Patterns and Structure

ADBI Working Paper Series GLOBAL VALUE CHAINS IN THE PACIFIC ISLAND COUNTRIES: PATTERNS AND STRUCTURE Upalat Korwatanasakul No. 1382 May 2023 Asian Development Bank Institute The Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI’s working papers reflect initial ideas on a topic and are posted online for discussion. Some working papers may develop into other forms of publication. The Asian Development Bank refers to “China” as the People’s Republic of China. Suggested citation: Korwatanasakul, U. 2023. Global Value Chains in the Pacific Island Countries: Patterns and Structure. ADBI Working Paper 1382. Tokyo: Asian Development Bank Institute. Available: https://doi.org/10.56506/XDZZ8844 Please contact the authors for information about this paper. Email: korwatanasakul@aoni.waseda.jp Upalat Korwatanasakul is an associate professor at the School of Social Sciences, Waseda University. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. Discussion papers are subject to formal revision and correction before they are finalized and considered published. Asian Development Bank Institute Kasumigaseki Building, 8th Floor 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan Tel: +81-3-3593-5500 Fax: +81-3-3593-5571 URL: www.adbi.org E-mail: info@adbi.org © 2023 Asian Development Bank Institute ADBI Working Paper 1382 U. Korwatanasakul Abstract This study investigates the patterns of global value chain (GVC) participation of Pacific island countries (PICs) at the country, industry, and firm levels, utilizing UNCTAD-Eora GVC data (1999–2018) and the World Bank’s Enterprise Survey data (2009 and 2015). It also uses the survey data to examine the relationship between firm and country characteristics and firm-level GVC participation. At the country level, the study found a limited role of the PICs in global and regional production networks, hindering foreign technological and knowledge transfer, industrialization, and economic development, while, at the industry level, the PICs generally engage in low-value-added activities. The firm-level analysis reveals that the PICs’ domestic firms, particularly SMEs, face difficulties joining value chains. Although firm characteristics, i.e., labor productivity and quality certification, are essential for firms to engage in GVCs initially, they are insufficient to deepen the GVC participation level. The analysis also emphasizes the significance of macro-level business-enabling environment factors, including good governance, trade openness, and foreign direct investment. Keywords: global value chain, islandness, Pacific island, production network, trade in value added JEL Classification: F13, F14, O24 ADBI Working Paper 1382 U. Korwatanasakul Contents 1. INTRODUCTION ....................................................................................................... 1 2. COUNTRY-LEVEL ANALYSIS .................................................................................. 2 3. INDUSTRY-LEVEL ANALYSIS .................................................................................. 8 4. FIRM-LEVEL ANALYSIS ......................................................................................... 11 4.1 Patterns and Structure of GVC Participation ................................................ 11 4.2 GVC-Firm Characteristics ............................................................................ 13 5. CONCLUSION ......................................................................................................... 16 REFERENCES ................................................................................................................... 18 APPENDIX .......................................................................................................................... 21 ADBI Working Paper 1382 U. Korwatanasakul 1 1. INTRODUCTION The Pacific Island countries (PICs) face several issues in their quest for economic and sustainable development due to their characteristic of “islandness,” i.e., economic and geographical smallness, remoteness, and dispersion (e.g., Juswanto and Ali 2016; Malua 2003; UNESCAP 2006; World Bank 2021). Small domestic markets constrain their economic activities and, in turn, reduce the possibility of realizing economies of scale, specialization, and i