Supply chain upgrading in connector economies

Abstract

Global trade and investment are being reorganized around efficiency, resilience and security rather than cost alone. Economies located between major geopolitical and production blocs have consequently attracted new orders and foreign investment, yet export expansion does not automatically raise domestic productivity, technological capability or household income. Drawing on public evidence from the IMF, WTO, UNCTAD and OECD, this article distinguishes trade rerouting, production reallocation and capability embedding, and develops a framework linking connection rents, local embeddedness and long-term upgrading. The analysis shows that short- term gains arise mainly from market access, location and regulatory differences, while durable value depends on supplier density, producer services, skills, organizational learning and reliable infrastructure. Foreign-invested export growth may coexist with weak participation by local firms, so export and FDI totals alone can misstate upgrading. Multinational firms should integrate procurement, engineering, data, energy, talent and rule-of-origin risks into a single location model to distinguish a transshipment node from a capability base. Policy recommendations include staged supplier development, open producer-service markets, skills co-investment, verifiable origin governance and a connection-quality dashboard.