The Governance of Global Value Chains: An Analytic Framework

This paper builds a theoretical framework to explain and predict governance patterns in global value chains. It draws on three streams of literature, transaction costs economics, production networks, and technological capability and firm-level learning to identify three variables that play a large role in determining how global value chains are governed. These are 1) the complexity of transactions, 2) the ability to codify transactions, and 3) the capabilities in the supply-base. The theory predicts how governance patterns in global value chains are expected to change in accordance with these variables. The paper highlights the dynamism and complexity of global value chains through four brief industry case studies: apparel, bicycles, horticulture and electronics. A parsimonious theory cannot explain and predict all outcomes. Institutions, geographic and social contexts and path dependence have profound effects on the governance and change in global value chains. Nevertheless, the theory advances previous formulations of global value chain theory. The paper concludes by identifying key areas for future work, including the application of the framework to existing and new studies of global value chains, using the theory to craft policy tools for industrial upgrading, and the development of methods for measuring the key variables in the model. DRAFT. DO NOT CITE OR DISTRIBUTE WIDELY WITHOUT PERMISSION. COMMENTS WELCOME.