A Study on the Effects of Multinational Production on Global and Domestic Value Chains Following Trade Restructuring and Corresponding International Economic Policies

Emphasizing foreign affiliates amid stagnant global value-chained trade, this study provides important evidence for measurable policies which should be taken dependent on the level of GVCs integration in shaping international trade flows and multinational production activity. The recent decreased share of value-added exports within gross exports represents characteristics of a wider value chained network. It is common not only for firms to increase their economic activities globally but also for oversea affiliates to operate as the linchpin between the international and domestic parts of value chains. Our findings suggest that foreign affiliate activity strengthens domestic value chains, thereby leading to the outcome of further growth in the host country, while domestic affiliate activity abroad strengthens global value chains which spur growth in the broader world economy. Based on empirical discussions centered on participating in GVCs, OECD high-income countries significantly integrated into GVCs will benefit from upgrading their GVCs policies such as capturing value-added in exports and building new technology or innovation. There is also a need to continue enforcing the domestic linkages of MNE affiliates, which contributes to growth and employment as they contract and cooperate with domestic firms. In addition, low-income countries not fully integrated into GVCs in the Asia-Pacific region may need to secure entry into existing GVCs with trade liberalization, while middle-income countries which have secured entry into GVCs may focus on enhancing competitiveness by increasing productivity and developing regional economic integration through forums like APEC.