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Value Chains for Development?

Potentials and Limitations of Global Value Chain Approaches in Donor Interventions

Cornelia Staritz

Wien, April 2012

Value chain interventions are increasingly used by international organizations and national donor agencies in the context of their private sector development (PSD) activities. These interventions are broadly labeled as "value chains for development" and share common characteristics such as the focus on improving market access conditions for and upgrading opportunities of developing country firms and producers in global value chains (GVCs) with the broader objectives of promoting private sectors and market-based and often exportoriented development. They differ however also along certain dimensions, most importantly with regard to the explicit focus on broader development objectives (i.e. poverty reduction, decent work, gender equality, environmental sustainability), the scope and specific activities supported (i.e. firm-level or meso and macro level support), and the type of targeted actors for the intervention (i.e. international lead firms or local firms/producers or institutions) (Henrikson et al. 2010; Humphrey/Navas-Aleman 2010).

The GVC framework and the academic literature on GVCs that has developed in the last two decades are used as a basis for donor-led value chain interventions. As Neilson and Pritchard (2011) point out, they however tend to focus on certain aspects of the GVC framework that can be aligned with mainstream approaches to development and particularly PSD such as market- and export-led development and "markets for the poor". They often do not take into account other crucial dimensions of the GVC literature and its critical tradition in the world system theory, in particular the existence of structural and asymmetric powerrelationships in the global economy, interest conflicts and the ambivalent role of lead firms in value chains, and the important role of institutions and particularly the state and strategic state policies (Neilson/Pritchard 2011). Further, even though many donor interventions focus on development objectives most importantly poverty reduction, these objectives are often not thoroughly integrated in value chain interventions.

The paper argues that taking the GVC framework as a basis for interventions to support private sectors in developing countries has the potential to make PSD interventions more effective in terms of improving economic and social outcomes of participating in international trade and global production. To secure the effectiveness of value chain interventions and their development effects, two factors are however critical: First, integration in GVCs should not be seen as "a panacea" for development but as "windows of opportunity" (Phillips/Henderson 2009: 60) that can have important development effects but should be complemented by more locally and regionally based development approaches (that may in itself involve the development of local or regional value chains). Second, the critical tradition and broader perspective of the GVC literature needs to be brought back and taken into account when re-designing existing or initiating new generations of value chain policies and interventions (Neilson/Pritchard 2011).

This paper provides an analysis of the use of value chain interventions in development cooperation in the context of the increasing importance of GVCs in the contemporary economy and the critical tradition of the GVC literature.1 Part 1 gives an overview of changes in global production and international trade in the last three decades that led to the increasing importance of GVCs in a diverse set of sectors and to new opportunities and challenges for developing country firms, producers and workers. Part 2 introduces the GVC approach, its roots and achievements in analyzing how global production is organized and how this affects the development prospects of firms, regions and countries. Part 3 discusses value chain interventions by international organizations and national donor agencies focusing on common characteristics and differences of their approaches. Part 4 identifies limitations of the "value chain for development" approach commonly used in development cooperation focusing on the selective application and the omission of some crucial dimensions of the GVC literature. The last part concludes.

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