Chapter 1.1 The changing world of global production
According to Baldwin and to Jha & Chakrabortty key drivers for GSC can be summarized in changes (1) in technology (e.g. transportation, ICT...) and (2) in economic policy (e.g. trade liberalization, creation of free economic zones and other economic incentives for investments...), in addition to an imbalanced socio-economic development between western economies (with relatively higher wages) and emerging economies (with relatively lower wages) that has resulted in a new international division of labour.
In my opinion, in addition to these drivers, the difference in the regulation and implementation of environment (including climate change), social, and governance (ESG) aspects across regions are fundamental as they create an uneven playing field. In western economies, ESG regulations increase production costs, making labour intensive industries less competitive. Emerging economies have based a significant part of their economic development on ESG dumping. Thus, the absence of international binding laws that impose minimum ESG performance for all countries irrespective of their economic development should be considered as a driver.
Another factor that influences GSC is consumption patterns and awareness levels of the ESG production conditions. The purchasing power of western households would decreased severely if production costs were to increase as a result of enhanced ESG regulations. Western consumers should assign a higher value to the conditions in which goods and services (and their components) are produced (in other words, they should have a higher willingness to pay), in order for corporates to have incentives to make changes in the management of their supply chain.