ABSTRACT
The rapid proliferation of the global value chains (GVC) literature indicates neoliberalism has struck back. The message is that instead of import substitution, developing countries should liberalize their trade and investment policies, encourage their firms to join GVCs that are largely governed by developed nations’ firms, and enjoy upgrading opportunities while serving external markets. Employing Albert Hirschman’s linkage framework that is informed by Adam Smith’s division of labor analysis, the chapter explores ways to augment domestic demand and employment by putting greater emphasis on domesticating segments of otherwise GVCs through industrial, technology, and trade policies, thereby localizing development. Domestic value chains could then be promoted by harnessing Hirschmanian production and consumption linkages that enables Smithian extensions of the domestic market. This represents new analytical support for something akin to the 1970s basic needs approach to eliminating poverty. The chapter ends by considering possible challenges that confront such domestic development initiatives.
