TECHNOLOGICAL INNOVATION, SUPPLY CHAIN TRADE, AND WORKERS IN A GLOBALIZED WORLDGLOBAL VALUE CHAIN DEVELOPMENT REPORT 2019© 2019 World Trade OrganizationWorld Trade Organization Centre William RappardRue de Lausanne 1541211 Geneva 2SwitzerlandTelephone: +41 (0)22 739 51 11Internet: wtoThis work is a product of the World Trade Organization, the Institute of Developing Economies (IDE-JETRO), the Organisation for Economic Co-operation and Development, the Research Center of Global Value Chains headquartered at the University of International Business and Economics (RCGVC-UIBE), the World Bank Group, and the China Development Research Foundation. It is based on joint research efforts to better understand the ongoing development and evolution of global value chains and their implications for economic development. 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Because the co-publishing partners encourage dissemination of their knowledge, this work may be reproduced, in whole or in part, for non-commercial purposes as long as full attribution to this work is given.Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 2025222625; e-mail: pubrightsworldbank.WTO print ISBN 978-92-870-4771-7WTO web ISBN 978-92-870-4968-1This publication uses US spelling. All mentions of dollars refer to US dollars, unless otherwise indicated. The term “billion” refers to a thou-sand million.The Research Center of Global Value Chains acknowledges the financial support from the Bill Research Faculty and Senior Policy Fellow, Schar School of Policy and Government, George Mason UniversityOther contributorsNadim Ahmad Head of Trade and Competitiveness Statistics Division, Organisation for Economic Co-operation and DevelopmentMarc Bacchetta Counsellor, World Trade OrganizationMichael J Ferrantino Lead Economist for Trade Policy, World Bank GroupClaire H Hollweg Senior Economist, World Bank GroupSatoshi Inomata Chief Senior Researcher, Institute of Developing Economies Japan External Trade OrganizationBilal M Khan Assistant Professor, Research Center for Global Value Chains, University of International Business and EconomicsEmine Elcin Koten Consultant, World Bank GroupXin Li Professor, School of Statistics, Beijing Normal UniversityKathryn Lundquist Statistician, World Trade OrganizationBo Meng Senior Overseas Research Fellow (New York), Institute of Developing Economies - Japan External Trade OrganizationJiansuo Pei Associate Professor, School of International Trade and Economics, University of International Business and EconomicsDaria Taglioni Senior Economist, World Bank Groupviii Technological innovation, supply chain trade, and workers in a globalized worldAcknowledgmentsThe Global Value Chains Development Report is a joint publication of the World Trade Organization (WTO), the Institute of Developing Economies (IDEJETRO), the Organisation for Economic Co-operation and Development (OECD), the Research Center of Global Value Chains (RCGVC-UIBE), the World Bank Group, and the China Development Research Foundation, based on joint research efforts to better understand the ongoing development and evo-lution of global value chains and their implications for economic development.This second report draws contributions from 23 background papers; 16 of them were presented and discussed at the confer-ence “Technological Innovation, Supply Chain Trade, and Work-ers in a Globalized World” in Beijing during March 2223, 2018, organized by the RCGVC and the China Development Research Foundation. Drafts of the eight chapters of the report were pre-sented and discussed at the second Authors Conference in Geneva on October 8, 2018, organized by the WTO. The editors thank the authors of background papers and individual chap-ters and the discussants and participants in the two conferences for insightful comments and suggestions that helped draft and improve the chapters (see appendices 1 and 2 for the programs). Special thanks go to our external reviewers: Jonathan Eaton (Penn State University), Gary Hufbauer (Peterson Institute for International Economics), Alonso de Gortari (Princeton and Dart-mouth), Kalina Manova (University College London), Maurice D Kugler (George Mason University), Marcel Timmer (the University of Groningen), and Felix Tintelnot (University of Chicago). The editors are grateful to Michael Spence for his keynote speech at the background paper conference in Beijing and his invalu-able expertise and advice on the overall narrative of the report. The editors also thank Robert Koopman, chief economist of the World Trade Organization and Caroline Freund, director of the World Bank Groups Trade, Regional Integration and Investment Climate, for their guidance and support during the joint research process as well as research and data contributions from the Asian Development Bank.The editors are grateful to William Shaw, who copy-edited the report, and to Anthony Martin, Head of WTO Publications, and Helen Swain, WTO Publications Editor, who were responsible for the production of the report.The RCGVC would like to acknowledge the financial support from the Bill & Melinda Gates Foundation and National Science Foundation of China (grant No. G0304-71733002).The reports co-editors are David Dollar, Emmanuelle Ganne, Victor Stolzenburg and Zhi Wang.ixAbbreviations and acronymsADB Asian Development Bank AI artificial intelligenceASEAN Association of Southeast Asian NationsB2B business-to-businessB2C business-to-consumer CDRF China Development Research Foundation CEO Chief Executive OfficerCIF ost, insurance and freightCMI customer-managed inventoryDRC Development Research Center of the State Council DVA domestic value-addedDVAR domestic value-added ratioECU electronic control unitEDI electronic data interchangeESUT extended supply-use tableFATS foreign affiliates statisticsFDI foreign direct investmentF O B free-on-boardFTZ foreign trade zoneGDP gross domestic productGM global manufacturingGSM global system for mobile communication GTH Global Trade HelpdeskGVC global value chainHIC high-income countryICIO inter-country input-outputICT information and communication technologyIDB Inter-American Development BankIDEJETRO Institute of Developing Economies IMF International Monetary FundIoT Internet of ThingsIPR intellectual property rightsITC International Trade CentreLACEX World Banks Labor Content of ExportsLDC least-developed countryLMIC low/medium-income countryMFN most-favored nationMNE multinational enterpriseOECD Organisation for Economic Co-operation and Development R&D research and developmentRCGVC Research Center of Global Value Chains RFID radio frequency identification SME small and medium-sized enterpriseSNA System of National AccountsSTEM science, technology, engineering, and mathematicsSUT supply and use tableTFP total factor productivityTiVA trade in value-addedUIBE University of International Business and EconomicsUNCTAD United Nations Conference on Trade and DevelopmentVMI vendor-managed inventoryWB World BankWIOD World Input-Output TablesWTO World Trade Organization x Technological innovation, supply chain trade, and workers in a globalized worldKey messages The growth of global value chains has slowed since the Global Financial Crisis of 2008-09 but not stopped. In fact, complex global value chains (GVCs) grew faster than GDP in 2017. Factoring in GVCs when studying the impact of trade on labor markets reveals that trade has not been a significant contributor to declines in manufacturing jobs in advanced economies, and that job gains in services have offset job losses in manufacturing. The emergence of GVCs has offered developing countries opportunities to integrate into the global economy by deliver-ing jobs and higher income. The impacts of technological change and increased produc-tivity on employment linked to GVCs have been offset by growing consumer demand, and in the short term, automa-tion will not dramatically reduce the attractiveness of low-wage destinations, especially for labor-intensive tasks that require human dexterity. The impact of new digital technologies on GVCs is uncertain: they may reduce the length of supply chains by encouraging the re-shoring of manufacturing production, thus reducing opportunities for developing countries to participate in GVCs, or they may strengthen GVCs by reducing coordination and matching costs between buyers and suppliers. Despite the aggregate gains they create, trade, automation and digital technologies can cause disruption and widen exist-ing disparities across regions and individuals. This calls for broad and comprehensive adjustment policies. While small and medium-sized enterprises (SMEs) are under-represented in GVCs, the digital economy provides new opportunities for SMEs to play a more active role. Open and transparent policies tend to promote GVC-led growth more than import-reducing policies targeted at raising the share of domestic value-added in exports. Using value-added trade rather than gross trade statistics is crucial to understanding GVCs and their impact on jobs. Efforts to continue to improve the quality of these estimates are strongly encouraged.