© Faculty of Management University of Warsaw. All rights reserved. DOI: 10.7172/2353-6845.jbfe.2015.2.4 51 51 • Journal of Banking and Financial Economics 2(4)2015, 51–63 Risks and Opportunities of Participation in Global Value Chains Gary Gereffi Duke University Xubei Luo The World Bank Received: 21 January 2015 / Revised: 10 May 2015 / Accepted: 15 May 2015 / Published online: 17 August 2015 ABSTRACT Risk is inherent to the pursuit of opportunity. This paper draws on the recent literature and looks at the risks and opportunities firms and their workers face in the global value chains. First, it examines the sharing mechanisms that firms provide from the national and global perspectives; second, it takes a closer look at the new opportunities and challenges for firms and individuals in the global arena; third, it discusses the role of economic upgrading and social upgrading; and finally it sheds light on how the government can help people manage risks and reap the benefits of participation in global value chains. JEL classification: F63, F68, L22, L23 Key words: Risk; global value chains; economic upgrading; social upgrading; global recession 1. INTRODUCTION For millennia, the ancient agrarian cycle based on crops and livestock controlled the fortunes of the world. Then came the Industrial Revolution in the mid-19 th century. “For the first time in history, the living standards of the masses of ordinary people have begun to undergo sustained growth,” notes Nobel laureate and economist Robert E. Lucas, Jr. “Nothing remotely like this economic behavior has happened before” (Lucas, 2002). More recently, in the context of integration and modernization, waves of technology improvement since the first industrial revolution have been changing the boundary of production, and redefining the spectrum of the role of state. Participation in global value chains (GVCs), which highlight the ways in which new patterns of international trade, production, and employment shape prospects for development and competitiveness, creates opportunities and risks to the enterprises. On the one hand, it creates new opportunities for profits and expands the market horizon; and on the other hand, it exposes the enterprise sector to risks previously shielded from market boundaries and geographic distance, and increases the degree of potential information asymmetry. Various forces interact in different directions, exacerbating or mitigating the dynamics of risks. Risk implies the possibility of loss. The upside of risk, or the possibility of gain, is opportunity. Risk (or opportunity) can be imposed from outside or taken on voluntarily in the pursuit of opportunities. Enterprises are facing a wide range of risks on a day-to-day basis. Due to continual