Focus on services in global value chains can transform developing economies, says new ITC study

17 September 2014
ITC News

Close to 65% of trade is made up of intermediate goods and services that form part of borderless production systems, known as global value chains.

Countries looking to boost their share in world markets can find inspiration in the case of Costa Rica. The Caribbean country transformed its economy in 20 years from a focus on agriculture to becoming the top high-tech exporter in Latin America, ranking as the fourth largest in the world.

The story of Costa Rica and a concise overview of shifting trade patterns in global value chains from agriculture to manufacturing to service is part of a new ITC study, Global Value Chains in Services: A Case Study on Costa Rica.

The report, launched at the World Export Development Forum in Kigali, Rwanda, on 17 September 2014 supports a session on Trade in services: the next frontier?

"Small and medium-sized enterprises in developing countries have opportunities to join value chains as service providers, not just as suppliers of goods," said Jane Drake-Brockman, who leads ITC's Trade in Services programme. "The 'servification' of trade in goods is a trend that is driving export growth."

With a long term vision to encourage foreign direct investment, Costa Rica has built an international reputation over time. It gained credibility with the arrival of Intel in 1987, followed by other firms, as the country focused on attracting offshore business services, medical devices and high-tech manufacturing.

Costa Rica also built a free trade platform of agreements, and invested in training for logistics and supply management.

The report recommends continued efforts to build the technical and language capabilities of its workforce, improvements in IP protection, lower electricity costs and strengthened transport infrastructure.

The case is useful for countries seeking to transform their economies from a mainly agricultural focus to a focus on the services sector in global value chains. National strategies have recently focused on pro-investment policies, liberalization and education to attract offshore manufacturing in global value chains.

The paper outlines how such strategies could be broadened to focus more on services. The services sector, which is in the pre- and post-manufacturing stage of global value chains, offer greater value. By investing more in services linked to global value chains, countries are more likely to climb the development ladder.