Catch-up Industrialization in the Era of GVCs: A case study of the automotive global value chain

In the 21st century, international trade in manufactured goods in the 21st century operates through global value chains (GVCs). This thesis investigates whether this fact has changed the playing field for catch-up industrialization, and what limitations and opportunities it provides for developing
countries integrating with GVCs. It does so mainly through an analysis of the automotive GVC, relying on both secondary data for a broad set of emerging economies and on primary empirical data from the South African automotive industry, which has successfully integrated itself with the automotive GVC over the last thirty years. The thesis puts forward a holistic theoretical understanding
of catch-up industrialization. Combining this theoretical understanding with a deep appreciation of GVCs provides a strong analytical framework for analyzing catch-up industrialization attempts and achievements in the 21st century. This combination of three strands in the literature – the classical development economics perspective, the evolutionary innovation and technology perspective, and the GVC perspective – is novel and is capable of resolving the shortcomings of analytical frameworks that only use one or two of these perspectives.
The thesis finds that South Africa’s integration into the automotive GVC has achieved a major tenet of catch-up industrialization, namely the overcoming of domestic demand constraints and the exploitation of economies of scale through the penetration of export markets for manufactures. It shows that the dynamics associated with the automotive GVC have weakened some of the benefits traditionally associated with exporting manufactured goods. Product development and design capabilities have not emerged among domestic South African automotive component firms. The foreign lead firms in the automotive GVC and their global sourcing strategies neither require nor incentivize domestic component manufacturers to build up such capabilities. This thesis also
demonstrates that the backward inter-industry linkages from tapping into automotive export markets have been disappointing. The GVC-specific dynamics of follow sourcing and the proliferation of manufacturing technologies and material standards have undermined more substantial backward
linkages from exports of automobiles. Using secondary data on other emerging economies participating in the automotive GVC, this thesis shows that many of the trends observed in South Africa are common in other countries as well. The
emergence of design capabilities in domestic automotive component firms is extremely rare, even in countries with larger automotive production and export volumes. Given the dynamics of global sourcing and lead firm power in the automotive GVC, the successful development of backward interindustry
linkages from vehicle and component exports arguably requires more scale than before the emergence of GVCs. However, positive experiences in South Korea, China, and Taiwan, and to some extent also in Thailand and Turkey show that participation in automotive GVCs can still be leveraged for catch-up industrialization in a more successful way than South Africa has done. Industrial policy to aid the exploitation of economies of scale in vehicle and component production, alongside an industrial policy that facilitates the indigenization of technology and innovation and design capabilities in domestic companies rather than just the localization of productive activities are key elements of such strategies. These types of industrial policy have been largely absent in South Africa, as this thesis demonstrates. While catch-up industrialization seems to have become more challenging due to the emergence of GVCs, it remains possible.