High-quality FDI to gain access to tech for GVC upgrading pushed

Asia Pacific Economic Cooperation (APEC) economies need to develop policies to attract high-quality foreign direct investment (FDI) to gain access to the necessary technology for global value chains (GVC) upgrading amid the development and adoption of Fourth Industrial Revolution (4IR) technologies, according to a new policy brief by the APEC Policy Support Unit.

The policy brief titled “Digital Technology and Global Integration: Opportunities for Innovative Growth” said the development and adoption of 4IR technologies can help economies upgrade their GVCs by improving production efficiency, creating new and better products and services, and enabling technological upgrading.

“That means targeting FDI that goes beyond labor-intensive job creation and that holds the promise of extensive technology transfer to the domestic economy (that increases competitiveness at the firm level). Such a path to innovative economic growth may be considered to ensure a more sustainable economic recovery and development,” it said.

The 4IR refers to the integration of digital technologies in different sectors with inventions from a wide range of fields, such as information technology hardware and software, connectivity, data management, user interfaces, power supply, as well as consumer goods, smart homes, vehicles and healthcare applications. But while 4IR may represent a window of opportunity for a leapfrogging strategy, it may also involve significant risks of failure, it said.

“…Success will depend on several factors, such as level of digital literacy, training and upskilling of the local workforce, domestic market size, and the dynamic involvement of multinational corporations and FDI,” it added.

Investing in research and development, as well as labor upskilling, for example, can help member economies leapfrog to higher stages.

While a more traditional approach, such as specialization, could help member economies incrementally build their technology and production capabilities as they move up value chains.

Dr. Akhmad Bayhaqi, a senior analyst with the Policy Support Unit, said the concept of the “smiling curve” in value chains, where the two ends of the smile –one end closer to the producer and the other closer to the consumer– have higher gain in terms of value-added compared to the middle point.

“This middle point is the labor-intensive manufacturing stage, which generally adds less relative value,” he said. “In order to increase revenue and gains from participating in global value chains, member economies could move their position either upstream towards research and development activities, or downstream towards branding and marketing activities.”

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