• Budi Djafar
    Budi Djafar
    Budi Akmal Djafar is a PhD candidate in Economics at the New School for Social Research. His dissertation investigates the implications of international trade and the rise of global value chains on national income, gender-based employment, and income inequality in Indonesia’s manufacturing sectors from 1970-2010. Djafar was previously a lecturer at BINUS International University in Jakarta. He served as a policy analyst at the Ministry of Foreign Affairs of the Republic of Indonesia from 2010 to 2013 and at the Council of Presidential Advisors of the Republic of Indonesia from 2013 to 2014.

Global Value Chain and Industrial Upgrading: Lessons from Indonesia and Thailand 1995-2010



Integration into global supply chain falls short of its promises to bring about "industrial upgrading," or moving up the value chain from relatively lower to higher economic activities, in the automotive industry in Indonesia and Thailand. I show that the automotive's competitiveness and Global Value Chain (GVC) participation, or the level of "upstreamness," experienced a modest increase from 1995 to 2010 in both countries but are driven mostly by parts and components and assembling activities and with no clear path towards innovation. My findings call into question the conventional views that integration into global markets bring about economic gains for local industries in developing economies. The paper concludes by suggesting that deeper integration into GVC does not immediately translate to industrial upgrading and remains doubtful as a channel for development. Participation into GVC may in turn create a "low-value added trap," as in the case of Indonesia and Thailand's auto industry. Capturing the gains from GVC requires policy that would create better institutional linkages, improve human capital, and targeted product within the value chain.