Economic gains from geographic shifts in international sourcing

Abstract

The geographic evolution of global value chains (GVCs) has been significantly changing the pace and structure of economic development in many countries. We first employ a global input-output (IO) model to quantify the contribution of geographic shifts in international sourcing to China's economic gains. In 2019, China's GDP per capita was 11 % below the world average. We show, however, that the gap would have been 39 % if there had been no international sourcing shifts between 1995 and 2019. We subsequently propose an optimization model in the global IO framework to explore potential strategies which further improve China's GDP per capita. The optimization results suggest that import substitution and export promotion could be two possible strategies. However, these strategies could fail if all countries adopt the same strategies and participate in the non-cooperative competition. Instead, our results suggest that promoting technological upgrading provides more sustainable opportunities for improving a country's gains.