by Riccardo Crescenzi (LSE) and Oliver Harman (Oxford)
To boost economic growth and support the green transition, regional strategies to advance green technologies or attract green sectors often prove challenging, particularly for less developed regions. An emerging third approach is the Green Global Value Chains (GGVCs), which greens existing tasks and practices by leveraging existing capabilities, emphasizing local strengths, and focusing on often-overlooked production components.
Sustainable regional development can be achieved in many ways. Yet some approaches are more applicable than others, in particular when it comes to less developed regions. One approach is to focus on the development of frontier green technologies, such as innovative and carbon-neutral solutions. However, a key measure for the generation of these new technologies—green patents—shows that the generation of these technologies is highly concentrated in a few regions. In these regions, a limited number of leading firms—often multinationals—are responsible for most of these patents, indicating limited access to generation of these ‘new to the world’ technologies. This is shown in Figure 1 below. Thus, pursuing leading green knowledge may face challenges due to competition among regions and the need for large-scale firms. It may not be applicable for all regions, especially in less advanced ones.
A second approach is to attract new green sectors to regions where they are lacking. Yet, many regions are already attempting this, often resulting in competition for the same industries (again often dominated by a limited number of multinational players). An example of this is highlighted in Figure 2 below that shows the many EU regions aiming to facilitate the development of a CO2 Capture and Storage within their boundaries. Moreover, producing certain green products requires sophisticated facilities and expertise. Thus, while attracting green industries is an option, it takes time and requires consideration of what other regions are doing. Not all regions may have this.
To counter the difficulties with green technologies and green sectors, Green Global Value Chains (GGVCs) provide a solution. This third and complementary strategy—one building on the approach of our Policy Impact Book—is to focus on greening existing products and services by reinforcing the green tasks pursued locally. By incorporating green practices and tasks into current regional capabilities, firms and workers can deliver existing goods—the ones in which the local economy has already consolidated strengths—in a more environmentally friendly manner. To aid in this strategy’s success, it is important to consider not only final products but also intermediate goods and services. These intermediate components play a significant and often overlooked role in the global production of goods and services. Thus, regions can tap into specific intermediate stages of the value chain and harness them (rather than trying to harness ‘full’ final products) to contribute to the green transition. As an example, a region does not need to aim at producing an entire electric bike in order to contribute to a goal of sustainable mobility. Rather it can, at least initially, focus on a particular component or stage in the production chain where existing local capabilities can offer some sort of competitive advantage. In doing so, this third approach incorporates both green upgrading within the value chain and thus local sustainability.
There are distinct ways in which regions facilitate this green upgrading. Horizontal upgrading is one form, where regions enhance their capabilities within the industry by producing more sophisticated components. For example, a region that produces standard bicycle brakes can upgrade to manufacturing electric bicycle brakes. Vertical upgrading is another form. This involves moving up the value chain by specialising in more advanced tasks, for example, moving from producing standard bicycle brakes to designing them, and potentially in a less environmentally damaging way. In short, by focusing on tasks rather than sectors, regions can identify opportunities for sustainable development.
By embracing GGVCs and integrating sustainability into regional strategies, regions can diversify their policies and create new opportunities for inclusive and sustainable development. To leverage GVCs, it is crucial to focus on tasks within the value chain, upgrade within existing industries, and incorporate greener practices throughout the entire value-added process. By doing so, regions can contribute to the global green transition while enhancing their own economic growth and development.
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A version of this article was previously published on the RSA Blog.
This post represents the views of the authors and not those of the GILD blog, nor the LSE.
Riccardo Crescenzi is a Professor of Economic Geography at the London School of Economics.
Oliver Harman is Cities Economist for the International Growth Centre Cities that Work initiative, Blavatnik School of Government, University of Oxford, and Associate Staff at London School of Economics.
