depending on their production and geo‐economic structures. Improvement in connectivity and market accessibility might lead to stronger clustering and agglomeration, which tends to favor the economic centers more than the periphery. Similarly, simplification of the customs clearance might benefit firms specializing in foreign trade or the economy in general, but at the same time raise the competition for those engaging in import substitution industries or focusing on the domestic market.

Infrastructure is not a sufficient condition for benefiting from participation in the global value chains, and participation in the global value chain is not a sufficient condition for structural upgrades. The “smile curve” is deep as value added is high at the pre‐ and post‐manufacturing stages. Based on a sample of more than 2 million firms in the European Union in 2015, the empirical results from Rungi and Del Prete (2017) confirmed a nonlinear U‐shaped relationship at firm‐level between the value added generated and position on a productive sequence. Developing countries, given the mix of their factor endowment, often enter global value chains first at the low value‐added stage (assembly or production stage) and subsequently seek to move towards higher value‐adding activities. To what extent they can increase their domestic value‐added and move up the ladder depends on a variety of factors. With good infrastructure, opportunity is there but success is not guaranteed; however, without good infrastructure, the economy will certainly be deprived of the opportunity to materialize its latent advantage at the global scale early on.

The public‐good nature of infrastructure calls for support from the governments, and partnership between the public and private sectors in many areas is essential. When the infrastructure investment crosses national borders, regional and global collaborations are essential. Concerted efforts between national governments and regional or international development agencies can play a crucial role. With the right conditions, infrastructure investment and economic growth can reinforce each other: good infrastructure investments can accelerate growth, while growth itself can generate greater demand for, and usually supply of, infrastructure.

Infrastructure is expensive and requires extensive maintenance. The fiscal burden can be high, particularly for the less developed countries that face multiple challenges and at the same time have the most urgent needs. Focusing the investment in infrastructure in special economic zones or industrial parks can be a useful approach to jump start the process with limited resources. China has spent over 5 percent of GDP over the past decades in infrastructure investment, cutting transport costs and helping connect production centers to domestic and international consumers (Huang, 2017). By substituting domestic for imported materials, China has been increasing the domestic content of its exports (Kee and Tang, 2015), and has become the world’s factory from a largely agrarian economy. The successful experience in China in the past decades shows that well‐ planned and well‐managed special economic zones with targeted investment promotion and catalytic development financing can help to unleash latent comparative advantages and facilitate integration and upgrading along the global value chains. Development in sectors where the economy has comparative advantages can stimulate gradual and sustained upgrading in the value chains and start the virtuous cycle building the ecosystem for more beneficial integration in the value chain for the entire economy.

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