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Global Value Chains and World Trade

Prospects and Challenges for Latin America

image of Global Value Chains and World Trade

The analysis of how Latin American and Caribbean economies participate in different segments of GVCs is at the heart of the current work agenda of the Economic Commission for Latin America and the Caribbean, which focuses on how structural change and productivity gains can promote economic development with equality. This volume builds on the relevant literature and suggests that the movement of firms to higher value added activities in GVCs requires them to step up their innovation efforts and develop new products and processes. Success in improving market shares and value added will depend, however, on which firms innovate most. Hence, innovation is a necessary but insufficient for increasing value added and market shares. Evidence suggests that since the 2008 economic crisis, the participation of Latin America and the Caribbean in global production networks has increased.

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Access to finance in value chains: New evidence from Latin America

The literature on financing for small and medium-sized enterprises (SMEs) highlights linkages with large firms in value chains as a possible way of enhancing access to credit. However, much of the literature on value chains emphasizes issues of coordination and governance of those linkages, along with their effects on industrial upgrading, with little mention of the financial implications for SMEs. This paper seeks to fill this gap by looking for evidence of the impact of inter-firm linkages and specifically interactions with large firms on access by SMEs to financing. Original enterprise-level data in three different Latin American and Caribbean sectors and countries (agro-industry in Argentina, furniture in Brazil, and information and communications technologies in Costa Rica) are used to compare the different sources and instruments of finance used by SMEs. A distinction is made between arm’s length financial mechanisms, based on “hard data” and relationship finance, based on “soft data”. The findings suggest that chain governance matters for the type of role large firms can play in enhancing access by SMEs to financing. Policies should take into account the type of chain governance between large firms and SMEs across industries and countries when providing incentives to increase the role of large firms as direct financiers or guarantee providers for SMEs.

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