The Domestication of value chains. Can the Visegrád Group countries benefit from the Chinese experience?

30  September 2021    3:00 pm CEST

Tomasz Geodecki, Cracow University of Economics (Poland)

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The presentation is based on a discussion paper co-authored with Marcin Zawicki.

Developing countries sometimes deploy local content requirements (LCRs) with a view to strengthening the capacity of domestic firms for industrial upgrading. They induce foreign lead firms to intensify cooperation with local suppliers and transfer technological knowledge in the process. The literature underscores the ineffectiveness of LCRs, as the gains for local suppliers tend to be offset by losses for final producers and consumers, yet treating LCRs as an innovation policy instrument may alter these outcomes. Taking the Chinese LCR policy pursued in 2004‒2014 in the high-tech and medium-high-tech (HT&MHT) sectors as a starting point, we intend to consider whether or not it can be replicated by the Visegrád Group countries (or the V4, i.e. the Czech Republic, Hungary, Poland, Slovakia). Apart from natural for the EU ban on violating free trade rules, the benefits of such policy would not offset the negative effects of decreased share of foreign demand. The authors’ research hypothesis is that LCRs cannot actually become an effective tool of the V4’s economic policy. In order to test it, three auxiliary questions were formulated: (1) Did the application of LCRs contribute to value-added in the Chinese economy?; (2) What were the mechanisms of LCRs’ impact on value-added in Chinese HT&MHT sectors?; and (3) Can the V4 countries follow the Chinese development path?

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Tomasz Geodecki

Tomasz Geodecki is an assistant professor at Cracow University of Economics, Poland. He has taken part in several scientific and implementation projects and evaluations for public institutions in Poland and Europe. His research focus on topics of economics of public sector, innovation policy, development and industrial upgrading within global value chains.

Related literature:
Grossman, G. M. (1981). The theory of domestic content protection and content preference. The Quarterly Journal of Economics, 96(4), 583–603.

Stone, S., Messent, J., & Flaig, D. (2015). Emerging policy issues: Localisation barriers to trade. OECD Publishing; Paris.

Veloso, F. M. (2006). Understanding local content decisions: Economic analysis and an application to the automotive industry. Journal of Regional Science, 46(4), 747–772.

Wübbeke, J., Meissner, M., Zenglein, M. J., Ives, J., & Conrad, B. (2016). Made in China 2025. Mercator Institute for China Studies. Papers on China, 2, 74.

Grodzicki, M. J., & Geodecki, T. (2016). New dimensions of core-periphery relations in an economically integrated Europe: The role of global value chains. Eastern European Economics, 54(5), 377–404.

Keywords: Economic policy, emerging economies, global value chains, local content requirements, Made in China 2025, Visegrád countries

JEL classification: F02, O25, O38, O47, O57, P33