factor intensity methodology puts emphasis on the underlying capabilities required for participation in global value chains and, importantly, shows how the requirements differ by sector.

Although fixed structural factors play a role in supporting or inhibiting GVC participation, there exists substantial scope for policy to shape outcomes. Policy reforms include investments in capabilities that change over a long time horizon, like physical, human and institutional capital, as well as variables that can be affected over a shorter time horizon, like logistics/connectivity, wage competitiveness, market access and access to inputs. Through policy reforms, countries can remove or counteract some of the deficiencies that have thus far left them out of production networks. Improving capabilities can lead to increasing participation in more technology‐intensive manufacturing sectors.

Overall, logistics, proximity to markets and strength of institutions seem to be most important for GVC participation. Low labor costs, meanwhile, appear to be relevant only for final assembly stages of GVCs, and then only as part of a package of characteristics that may bring about GVC participation.

Setting realistic goals for GVC participation in the future is important. There exists a sector “ladder” of increasingly greater levels of capability requirements. The ladder is not identical across all countries worldwide. Overall, by looking at the capability intensity of different industries, and which capabilities can be changed over what timeframe, policy makers can make decisions on which GVC products and sectors where they are likely to have the greatest potential to compete and which capabilities to invest in. It is not always the case that intermediates are less achievable than final assembly.

The SACU region may be structurally disadvantaged by being far from global markets, but other policy‐ related variables may matter just as much. Therefore, if SACU countries want to increase their participation in GVCs, they need to focus on addressing existing policy gaps that restrict global value chain participation. Other studies have described what specific policies might be beneficial, consistent with the findings of this study. These include, among others: addressing gaps in regional trade facilitation and trade policy to improve access to markets, and lower the cost of access to inputs; improving access to and quality of key services inputs; and, raising skills to improve productivity in order to exploit regional wage competitiveness (World Bank, 2016). Initially, these investments can contribute to participation in lower value‐added segments in GVCs, and over the long‐term can lead to greater participation in more technology‐intensive and higher value‐added activities and sectors.

# VII. References

Athukorala, P. (2010), “Production Networks and Trade Patterns in East Asia: Regionalization or Globalization?” ADB Working Paper Series on Regional Economic Integration, No. 56.

Baldwin, R. (2011), "Trade and Industrialization After Globalization’s 2nd Unbundling: How Building and Joining a Supply Chain Are Different and Why It Matters," NBER Working Papers 17716.

- Cattaneo, O., G. Gereffi, S. Miroudot and D. Taglioni (2013), “Joining, Upgrading and Being Competitive in Global Value Chains: A Strategic Framework”, World Bank Policy Research Working Paper, No. 6406.

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