The role of global value chains (gvcs), focusing on the participation of australia, china, and malaysia

--- Page 1 --- Abstract This report examines the role of Global Value Chains (GVCs ), focusing on the participation of Australia, China, and Malaysia wheat industry. The wheat GVC illustrates global agricultural interconnectedness, with Australia as a primary producer, China as a major processor, and Malaysia as a significant market. Theoretical foundations of GVCs, including comparative advantage and factor endowments, shape these countries'''' roles. Factors influencing GVC participation encompass labor, technology, infrastructure, and policies. Analysis of data from 175 countries reveals a positive correlation between economic openness and living standards, suggesting globalization''''s potential to contribute to economic growth. However, variations in the data indicate that factors such as institutions, human capital, and innovation also play crucial roles. Australia''''s experience aligns with this trend, showing increased global integration coinciding with rising living standards. The report concludes that while globalization can serve as a growth strategy, complementary factors are essential for translating its benefits into sustainable development. It emphasizes the importance of understanding GVC dynamics and adopting a holistic approach considering both trade and domestic policies to foster inclusive growth in a globalized context. Introduction Global Value Chains (GVCs) are becoming quite crucial in determining global commerce and economic development. The wheat sector clearly shows the interdependence of world agriculture as nations like Australia, China, and Malaysia contribute differently in the production, processing, and consumption of wheat and its related goods. The objective of this paper is to investigate the dynamics of the wheat GVC, the theoretical underpinnings supporting GVCs, and the elements affecting national GVC participation. It also investigates how living standards relate to globalization, using a case study of Australia and also average values of 175 nations. The example of GVC Australia, China and Malaysia are notable players in wheat-related GVC. Specifically, Australia serving as a primary wheat producer, China a major flour processor, and Malaysia as a significant market for both wheat and flour (AEGIC 2022). Figure 1 Wheat-flour-flour-related products GVC The GVC process begins with wheat cultivation in Australia, supported by imported inputs such as fertilizers. In the 2024-25 marketing year, Australia''''s wheat production is forecast at 25.8 million tonnes, with exports projected at 17.5 million tonnes (USDA 2024). Australia''''s wheat exports for the 2023-24 season are on pace to reach 20 million tonnes, with over 80% of this volume shipped by the end of June (Rabobank 2024). The harvested wheat is then exported to China. In 2023, $2.03 billion worth of Australian wheat was imported into China (OEC 2024b). With the advantage of both technology and cheap human resources, China can easily process and process wheat into high-quality flours with low prices and are popular in many countries, especially in the Southeast Asian region. Asia region. In May 2024, China''''s wheat flour exports accounted for $4.39 million, mainly Hong Kong, North Korea, Macau and Malaysia (OEC 2024a). Malaysia is a large market for processed flour (the 35th largest importers since 2022) importing about $47.1k worth of flour from China in May 2024. This raw material is then used directly in factories such as Nestle and Mamee Double Decker to process into final products such as noodles and pasta, which are popular products here. The final products are consumed domestically in Malaysia and exported to other markets. Malaysia''''s strategic location and well-developed food processing industry make it an important player in the regional and global trade of these products. In 2023, Malaysians consumed 1,640 million servings of instant noodles, ranking 13th globally (TheSun 2024). The Malaysian pasta and noodles market was valued at $436.9 million in 2020 and is projected to grow at a CAGR of more than 4% during 2021-2025 (GlobalData 2023). The wheat GVC demonstrates the interconnectedness of global agriculture, with each participating country performing specific value-adding activities. However, this GVC challenges such as supply chain disruptions, price volatility, and changing market dynamics. For example, the COVID-19 pandemic impacts global freight networks, affecting wheat trade flows (FAO 2022). Furthermore, influencing Australia''''s wheat output cost are changes in fertiliser costs. Notwithstanding these difficulties, Australia''''s strong position in the wheat GVC—supported by its premium wheat and solid trade ties—allows it to seize value and help to provide world food security. Theoretical foundations of GVCs Comparative Advantage David Ricardo''''s comparative theory holds that nations should focus on manufacturing items and services for which they have a relative efficiency advantage (Krugman et al. 2018). Australia has a competitive advantage in wheat output from its large arable area, mild temperature, and sophisticated agricultural methods (ABARES 2023). Supported by its access to modern technologies and a sizable, reasonably cheap labor force, China''''s comparative industrial advantage helps it to effectively transform wheat into premium flour (WorldBank 2024). By turning imported flour into finished goods, Malaysia''''s competitive advantage in food processing and strategic position helps to create value (MIDA 2024). --- Page 2 --- Economies of Scale Economies of scale—that is, the cost benefits resulting from more production—can be attained via trade and specialization (Krugman et al. 2018). Australia''''s wheat-producing concentration helps it to gain from economies of scale, hence lowering the average cost of production (ABARES 2023). China''''s huge flour processing sector enables it to reach economies of scale, hence reducing the manufacture cost (WorldBank 2024). Factor Endowments According to the Heckscher-Ohlin model, nations will specialize in manufacturing commodities that extensively exploit their plentiful sources of production (Krugman et al. 2018). Australia''''s plenty of area and mild temperature fit it well for growing wheat (ABARES 2023). One important asset supporting China''''s substantial position as a major flour processor is its vast, reasonably affordable labor supply (WorldBank 2024). Factors Influencing GVC Participation Labor The availability, cost, and productivity of labor are crucial factors influencing GVC participation (WorldBank 2023). China''''s large, cost-effective labor force supports its role as a major flour processor (WorldBank 2024). Malaysia''''s skilled workforce in the food processing industry enables it to produce high-quality final products (MIDA 2024). Australia''''s skilled labor force contributes to its efficiency in wheat production (ABARES 2023). Technology Access to modern technologies and the capacity to innovate are critical for advancement inside GVCs (WorldBank 2023). China''''s investments in modern milling technologies have improved its flour processing capacity (WorldBank 2024). Malaysia''''s use of advanced food processing technology strengthens its position in final product production (MIDA 2024). Australia''''s application of modern agricultural technology increases wheat production efficiency (ABARES 2023). Infrastructure GVC participation depends critically on well-developed infrastructure including transportation networks and logistical facilities (WorldBank 2023). Australia''''s effective supply chain logistics and port facilities help explain its wheat exports (ABARES 2023). China''''s improved port infrastructure and transportation systems help to effectively distribute flour (WorldBank 2024). Malaysia''''s investments in industrial parks and logistical infrastructure help to explain its position in manufacturing and exporting finished goods (MIDA 2024). Institutions and Policies Participation in GVC is significantly facilitated by institutional quality and supporting policies (WorldBank 2023). Australia''''s wheat manufacturing and exports (ABARES 2023) are supported by its stable institutional framework and encouraging agricultural policies. China''''s policies supporting industrial growth and technology upgrading help its flour processing sector (WorldBank 2024). Policies of Malaysia encouraging foreign investment and the growth of the food processing sector help to define its position in the GVC (MIDA 2024). The relationship of globalization and living standards Countries with an openness exceeding 100% are highly integrated into GVCs, with trade playing a central role in their economies (Gygli et al. 2019). For instance, Singapore''''s openness of 351.04% in 2022 reflects its status as a global trade hub, with its strategic location and business-friendly environment attracting high trade volumes (WorldBank 2024). Similarly, Luxembourg''''s openness of 281.13% is driven by its specialization in financial services, which are highly traded internationally (OECD 2024). Malta''''s openness of 257.68% is attributed to its role as a transshipment center and its thriving tourism industry, which relies heavily on international visitors (WorldBank 2024). These countries often specialize in high-value-added activities within GVCs, such as financial services and high-tech manufacturing, leading to high trade volumes relative to their economic size (OECD 2024). Figure 2 The relationship between the openness and living standards (GDP per capita) in 175 countries The scatter plot of the 175 countries shows a positive correlation between openness and living standards. Countries with higher openness generally have higher per capita GDP, suggesting that globalization can contribute to economic growth and development. This relationship is supported by the theory of comparative advantage, which argues that countries benefit from specializing in and trading goods/services they produce relatively efficiently (Ricardo, 1817). However, the scatter plot also reveals variation, with some countries deviating from the general trend. For example, Luxembourg and Singapore have openness levels of 281.13% and 351.04%, respectively, and per capita GDPs of $11.25 and $11.07, while the United States has an openness of 25.15% and a GDP per capita of $10.71 (WorldBank 2024). This suggests that while openness is important, other factors such as institutions, human capital, and innovation also play crucial roles in determining living standards (Acemoglu & Robinson 2012). Figure 3 The relationship between the openness and living standard in Australia The Australian data shows an overall upward trend in both openness and GDP per capita from 1990 to 2023. Australia''''s openness increased from 32.15% in 1990 to 48.08% in 2023, while its GDP per capita rose from 9.76 to 11.14 over the same period (WorldBank 2024). This suggests that Australia''''s increasing integration into the global economy has coincided with rising living standards. Australia''''s participation in GVCs, particularly in resource-based sectors and services, has been a key driver of its economic growth (OECD 2023). However, the line graph also reveals periods where openness and GDP per capita diverge, such as during the global financial crisis (2008-2009), when openness increased from 42.85% to 45.74%, while GDP per capita growth slowed from 10.53 to 10.60 (WorldBank 2024). This highlights the potential vulnerabilities associated with global economic shocks.

This report examines the role of Global Value Chains (GVCs), focusing on the participation of Australia, China, and Malaysia wheat industry The wheat GVC illustrates global agricultural interconnectedness, with Australia as a primary producer, China as a major processor, and Malaysia as a significant market Theoretical foundations of GVCs, including comparative advantage and factor endowments, shape these countries' roles Factors influencing GVC participation encompass labor, technology, infrastructure, and policies

Analysis of data from 175 countries reveals a positive correlation between economic openness and living standards, suggesting globalization's potential to contribute to economic growth However, variations in the data indicate that factors such as institutions, human capital, and innovation also play crucial roles Australia's experience aligns with this trend, showing

increased global integration coinciding with rising living standards

The report concludes that while globalization can serve as a growth strategy, complementary factors are essential for translating its benefits into sustainable development It emphasizes the importance of understanding GVC dynamics and adopting a holistic approach considering both trade and domestic policies to foster inclusive growth in a globalized context

Abstract 1

Introduction 3

The example of GVC 3

Theoretical foundations of GVCs 4

1 Comparative Advantage 4

2 Economies of Scale 5

3 Factor Endowments 5

4 Factors Influencing GVC Participation 5

The relationship of globalization and living standards 6

Conclusion 9

Reference 9

Global Value Chains (GVCs) are becoming quite crucial in determining global commerce and economic development The wheat sector clearly shows the interdependence of world agriculture

as nations like Australia, China, and Malaysia contribute differently in the production,

processing, and consumption of wheat and its related goods The objective of this paper is to investigate the dynamics of the wheat GVC, the theoretical underpinnings supporting GVCs, and the elements affecting national GVC participation It also investigates how living standards relate

to globalization, using a case study of Australia and also average values of 175 nations

The example of GVC

Australia, China and Malaysia are notable players in wheat-related GVC Specifically, Australia serving as a primary wheat producer, China a major flour processor, and Malaysia as a

significant market for both wheat and flour (AEGIC 2022)

Figure 1 Wheat-flour-flour-related products GVC

The GVC process begins with wheat cultivation in Australia, supported by imported inputs such

as fertilizers In the 2024-25 marketing year, Australia's wheat production is forecast at 25.8 million tonnes, with exports projected at 17.5 million tonnes (USDA 2024) Australia's wheat exports for the 2023-24 season are on pace to reach 20 million tonnes, with over 80% of this volume shipped by the end of June (Rabobank 2024)

The harvested wheat is then exported to China In 2023, $2.03 billion worth of Australian wheat was imported into China (OEC 2024b) With the advantage of both technology and cheap human resources, China can easily process and process wheat into high-quality flours with low prices and are popular in many countries, especially in the Southeast Asian region Asia region In May

2024, China's wheat flour exports accounted for $4.39 million, mainly Hong Kong, North Korea, Macau and Malaysia (OEC 2024a)

Malaysia is a large market for processed flour (the 35th largest importers since 2022) importing about $47.1k worth of flour from China in May 2024 This raw material is then used directly in factories such as Nestle and Mamee Double Decker to process into final products such as

noodles and pasta, which are popular products here The final products are consumed

domestically in Malaysia and exported to other markets Malaysia's strategic location and well-developed food processing industry make it an important player in the regional and global trade

of these products In 2023, Malaysians consumed 1,640 million servings of instant noodles, ranking 13th globally (TheSun 2024) The Malaysian pasta and noodles market was valued at

$436.9 million in 2020 and is projected to grow at a CAGR of more than 4% during 2021-2025 (GlobalData 2023)

The wheat GVC demonstrates the interconnectedness of global agriculture, with each

participating country performing specific value-adding activities However, this GVC challenges such as supply chain disruptions, price volatility, and changing market dynamics For example, the COVID-19 pandemic impacts global freight networks, affecting wheat trade flows (FAO 2022) Furthermore, influencing Australia's wheat output cost are changes in fertiliser costs Notwithstanding these difficulties, Australia's strong position in the wheat GVC—supported by its premium wheat and solid trade ties—allows it to seize value and help to provide world food security

Theoretical foundations of GVCs

1 Comparative Advantage

David Ricardo's comparative theory holds that nations should focus on manufacturing items and services for which they have a relative efficiency advantage (Krugman et al 2018) Australia has

a competitive advantage in wheat output from its large arable area, mild temperature, and sophisticated agricultural methods (ABARES 2023) Supported by its access to modern

technologies and a sizable, reasonably cheap labor force, China's comparative industrial

advantage helps it to effectively transform wheat into premium flour (WorldBank 2024) By turning imported flour into finished goods, Malaysia's competitive advantage in food processing and strategic position helps to create value (MIDA 2024)

2 Economies of Scale

Economies of scale—that is, the cost benefits resulting from more production—can be attained via trade and specialization (Krugman et al 2018) Australia's wheat-producing concentration helps it to gain from economies of scale, hence lowering the average cost of production

(ABARES 2023) China's huge flour processing sector enables it to reach economies of scale, hence reducing the manufacture cost (WorldBank 2024)

3 Factor Endowments

According to the Heckscher-Ohlin model, nations will specialize in manufacturing commodities that extensively exploit their plentiful sources of production (Krugman et al 2018) Australia's plenty of area and mild temperature fit it well for growing wheat (ABARES 2023) One

important asset supporting China's substantial position as a major flour processor is its vast, reasonably affordable labor supply (WorldBank 2024)

4 Factors Influencing GVC Participation

Labor

The availability, cost, and productivity of labor are crucial factors influencing GVC participation (WorldBank 2023) China's large, cost-effective labor force supports its role as a major flour processor (WorldBank 2024) Malaysia's skilled workforce in the food processing industry enables it to produce high-quality final products (MIDA 2024) Australia's skilled labor force contributes to its efficiency in wheat production (ABARES 2023)

Technology

Access to modern technologies and the capacity to innovate are critical for advancement inside GVCs (WorldBank 2023) China's investments in modern milling technologies have improved its flour processing capacity (WorldBank 2024) Malaysia's use of advanced food processing technology strengthens its position in final product production (MIDA 2024) Australia's

application of modern agricultural technology increases wheat production efficiency (ABARES 2023)

Infrastructure

GVC participation depends critically on well-developed infrastructure including transportation networks and logistical facilities (WorldBank 2023) Australia's effective supply chain logistics and port facilities help explain its wheat exports (ABARES 2023) China's improved port

infrastructure and transportation systems help to effectively distribute flour (WorldBank 2024) Malaysia's investments in industrial parks and logistical infrastructure help to explain its position

in manufacturing and exporting finished goods (MIDA 2024)

Institutions and Policies

Participation in GVC is significantly facilitated by institutional quality and supporting policies (WorldBank 2023) Australia's wheat manufacturing and exports (ABARES 2023) are supported

by its stable institutional framework and encouraging agricultural policies China's policies supporting industrial growth and technology upgrading help its flour processing sector

(WorldBank 2024) Policies of Malaysia encouraging foreign investment and the growth of the food processing sector help to define its position in the GVC (MIDA 2024)

The relationship of globalization and living standards

Countries with an openness exceeding 100% are highly integrated into GVCs, with trade playing

a central role in their economies (Gygli et al 2019) For instance, Singapore's openness of 351.04% in 2022 reflects its status as a global trade hub, with its strategic location and business-friendly environment attracting high trade volumes (WorldBank 2024) Similarly, Luxembourg's openness of 281.13% is driven by its specialization in financial services, which are highly traded internationally (OECD 2024) Malta's openness of 257.68% is attributed to its role as a

transshipment center and its thriving tourism industry, which relies heavily on international visitors (WorldBank 2024) These countries often specialize in high-value-added activities within GVCs, such as financial services and high-tech manufacturing, leading to high trade volumes relative to their economic size (OECD 2024)

6

7

8

9

10

11

12

f(x) = 0.01 x + 8.34 R² = 0.13

Openness (%)

Figure 2 The relationship between the openness and living standards (GDP per capita) in 175 countries

The scatter plot of the 175 countries shows a positive correlation between openness and living standards Countries with higher openness generally have higher per capita GDP, suggesting that globalization can contribute to economic growth and development This relationship is supported

by the theory of comparative advantage, which argues that countries benefit from specializing in and trading goods/services they produce relatively efficiently (Ricardo, 1817) However, the scatter plot also reveals variation, with some countries deviating from the general trend For example, Luxembourg and Singapore have openness levels of 281.13% and 351.04%,

respectively, and per capita GDPs of $11.25 and $11.07, while the United States has an openness

of 25.15% and a GDP per capita of $10.71 (WorldBank 2024) This suggests that while openness

is important, other factors such as institutions, human capital, and innovation also play crucial roles in determining living standards (Acemoglu & Robinson 2012)

90 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

9

10

11

12

0 10 20 30 40 50 60

Figure 3 The relationship between the openness and living standard in Australia

The Australian data shows an overall upward trend in both openness and GDP per capita from

1990 to 2023 Australia's openness increased from 32.15% in 1990 to 48.08% in 2023, while its GDP per capita rose from 9.76 to 11.14 over the same period (WorldBank 2024) This suggests that Australia's increasing integration into the global economy has coincided with rising living standards Australia's participation in GVCs, particularly in resource-based sectors and services, has been a key driver of its economic growth (OECD 2023) However, the line graph also reveals periods where openness and GDP per capita diverge, such as during the global financial crisis (2008-2009), when openness increased from 42.85% to 45.74%, while GDP per capita growth slowed from 10.53 to 10.60 (WorldBank 2024) This highlights the potential vulnerabilities associated with global economic shocks

Comparing the two visualizations, Australia's experience aligns with the broader trend observed across the 175 countries However, Australia's relatively high living standards (GDP per capita

of 11.14 in 2023) and moderate openness (48.08% in 2023) suggest that factors beyond trade, such as its strong institutions, human capital, and innovation capabilities, have also contributed

to its economic success (IMD 2024)

Therefore, they all support the idea of globalization as a growth/development strategy, as

countries with higher openness generally experience higher living standards However, the variations observed underscore the importance of complementary factors in translating the benefits of globalization into sustainable economic growth and development

Conclusion

The case study of Australia, China, and Malaysia in the wheat GVC demonstrates the importance

of comparative advantage, economies of scale, and factor endowments in shaping countries' roles within GVCs The positive correlation between openness and living standards across 175

countries, as well as Australia's experience, supports the idea of globalization as a growth and development strategy However, the variations observed underscore the importance of

complementary factors, such as institutions, human capital, and innovation, in translating the benefits of globalization into sustainable economic growth and development As countries continue to navigate the challenges and opportunities presented by GVCs, a holistic approach

that considers both trade and domestic policies will be crucial in fostering inclusive and

sustainable development

Reference

ABARES (2023) Agricultural commodities: March quarter 2023 Australian Bureau of

Agricultural and Resource Economics and Sciences

https://www.agriculture.gov.au/abares/research-topics/agricultural-outlook/agriculture-overview

Acemoglu, D., & Robinson, J A (2012) Why nations fail: The origins of power, prosperity, and poverty Crown Publishing Group

AEGIC (2022) Australian Grain Export Innovation Centre https://www.aegic.org.au/

FAO (2022) The impact of the COVID-19 pandemic on food trade and global supply chains Food and Agriculture Organization of the United Nations

http://www.fao.org/3/cb6298en/cb6298en.pdf

store/report/malaysia-foodservice-market-analysis/

Gygli, S., Haelg, F., Potrafke, N., & Sturm, J E (2019) The KOF globalisation index –

revisited The Review of International Organizations, 14(3), 543-574

https://doi.org/10.1007/s11558-019-09344-2

Krugman, P R., Obstfeld, M., & Melitz, M J (2018) International economics: Theory and policy (11th ed.) Pearson

MIDA (2024) Food Technology Malaysian Investment Development Authority

https://www.mida.gov.my/industries/manufacturing/food-technology/food-technology-agriculture-food-processing/

The Sun (2024, May 24) M'sians consumed 1,640 million servings of instant noodles in 2023, 13th spot globally The Sun