Working Paper No. 33 - The changing structure of international trade linked to global production systems: what are the policy implications?

The paper discusses the extent of the structural change, its causes and implications for policy and theory due to the rise of trade in intermediate goods. It emphasizes theories to be more focused on the competitive struggle of absolute advantage and externalization. This entails industrial, competition, and labour market policies at national levels aimed at producing profit and wage growth, which is needed for long-term economic growth through the building of skills, knowledge-based assets, infrastructure, and demand. Referring to past success cases, the paper argues that for industrial upgrading, countries cannot solely rely on inward foreign direct investment and a balance is needed between firm market power and profits and competitive pressure, which promotes knowledge-asset creation. Policy implications include promoting R&D, skill development in production and management, and very specific competition policy.