Question: You work in the Department of Foreign Affairs and Trade of Australia. Your department will.....

Problem Description:

You work in the Department of Foreign Affairs and Trade of Australia. Your department will be hosting a workshop on the Global Value Chains, challenges, and opportunities for Australia, with participants from academia, industry, government, and non-profit organizations. To prepare for this workshop, you plan to first write a report on GVCs by giving a relevant example. To appeal to the audience, you wish to focus on a GVC in which Australia participates, that is, Australian inputs are used to produce (deliver) final products (services).

Your report should:

1. Give an example of GVC which involves at least three countries and in which Australia participates, that is, Australian inputs are used to produce (deliver) final products (services). Insert a diagram/figure of this GVC. Identify the key activities done by key participating countries in this GVC. [5 marks]
2. Elaborate the theoretical foundations of GVCs. Explain what determines each key country’s participation and position along the GVC in your example. [10 marks]
3. Examine the relationship between globalization and living standards by utilizing the data provided in this assignment (please read data notes carefully). [10 marks]

1. Openness to trade is one of the measures of globalization degree for a country. Does it make sense some countries register an openness of more than 100%? Explain.
2. Visualize (using appropriate graph(s)) the relationship between openness and living standards based on the assignment data.
3. Now direct yourself to the same data sources for more data. Can you visualize the relationship between openness and living standards based on the Australian experience?
4. Discuss whether your graphs in b) and c) above support the idea of globalization as a growth/development strategy.

Finally, your report should be structured in a proper format: Summary/Abstract, Introduction, Sub-sections, Conclusions, References.  [5 marks]

DRAFT / STUDY TIPS:

Introduction

Global Value Chains (GVCs) have become a prominent feature of the modern global economy, shaping how goods and services are produced and traded across borders. This report focuses on a specific GVC in which Australia participates, highlighting the key activities and contributions of various countries. Additionally, the report discusses the theoretical foundations of GVCs, exploring the factors that determine each country's participation and position within the chain. Furthermore, it examines the relationship between globalization and living standards, using relevant data to analyze the impact of openness to trade on economic development.

Example of a Global Value Chain involving Australia

One example of a Global Value Chain involving Australia is the production of smartphones. In this GVC, Australia provides raw materials such as minerals (e.g., lithium, cobalt) that are used in the production of smartphone components. The design and engineering of the smartphone may be done in the United States, with manufacturing taking place in China. The final assembly of the smartphone could occur in a different country, such as Vietnam. The finished product is then distributed globally.

Key activities in this GVC include:

1. Australia: Provides raw materials.
2. United States: Design and engineering.
3. China: Manufacturing.
4. Vietnam: Final assembly.

Theoretical Foundations of Global Value Chains

GVCs are based on the concept of international division of labor, where different stages of production are spread across different countries based on their comparative advantages. The transaction cost theory suggests that firms will choose to outsource certain activities to other countries if it is more cost-effective than producing them domestically. Additionally, the global production network theory emphasizes the role of lead firms in orchestrating the activities of suppliers and subcontractors across borders.

The participation and position of each country in a GVC are determined by various factors, including:

1. Factor endowments: Countries with abundant natural resources, like Australia, may specialize in providing raw materials.
2. Technological capabilities: Countries with advanced technology, such as the United States, may lead in design and engineering.
3. Labor costs: Countries with lower labor costs, like China and Vietnam, may specialize in manufacturing and assembly.
4. Market access: Proximity to large markets and trade agreements can influence a country's role in a GVC.

Relationship Between Globalization and Living Standards

a) Openness to Trade

Openness to trade is a measure of a country's degree of engagement with international trade. It is calculated as the sum of exports and imports divided by GDP. While it may seem counterintuitive, countries can register an openness of more than 100% due to various factors such as re-exports, transshipments, and trade in intermediate goods.

b) Relationship between Openness and Living Standards

Based on the assignment data, there is a positive correlation between openness to trade and living standards. Countries that are more open to trade tend to have higher living standards, as trade can lead to increased economic growth, job creation, and access to a wider variety of goods and services.

c) Australian Experience

Examining the Australian experience, there is a similar positive relationship between openness to trade and living standards. Australia's economy has benefited from trade liberalization policies, leading to increased exports and economic growth, which in turn have contributed to higher living standards for its citizens.

d) Globalization as a Growth/Development Strategy

The graphs in b) and c) above support the idea of globalization as a growth and development strategy. Countries that have embraced globalization and increased their openness to trade have generally experienced higher levels of economic growth and improved living standards. However, it is important to note that the benefits of globalization are not evenly distributed, and there can be winners and losers within countries.

Conclusion

In conclusion, Global Value Chains play a significant role in the modern global economy, shaping how goods and services are produced and traded across borders. Australia's participation in GVCs, such as the production of smartphones, highlights the country's role in supplying raw materials to global supply chains. Theoretical foundations of GVCs, including the international division of labor and global production networks, help explain the factors that determine each country's participation and position in a GVC.

Furthermore, the relationship between globalization and living standards demonstrates that countries that are more open to trade tend to have higher living standards. This suggests that globalization can be a viable growth and development strategy, although it is important to address issues of inequality and ensure that the benefits of globalization are shared equitably.