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FDI and Trade in GVCs
Preliminary Findings on Investment and Value Added Trade in the Global Economy
Masataka Fujita, Head, Investment Issues and Trends Branch Division on Investment and Enterprise UNCTAD Geneva, 9 April 2013
Latin America’s entry in the global offshore service industry
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▪ Value added trade in the global economy
▪ GVCs: the trade-investment nexus
▪ The development impact of GVCs
▪ The way forward: a policy analysis agenda
Contents
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Value Added Trade: how does it work? Domestic Value Added in exports
Foreign Value Added incorporated
Country A
Country B
Country C
Country D
Raw material extraction Processing Manufacturing Final
demand
Value chain
Participating countries Gross
exports Domestic
Value Added
2 2
26 24
72 46
100 72
2
2 24
24 2 46
+
+ + = 72
= 26
∑
Double-counting
0
2
26
28
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How much value added does global trade actually generate?
Global value added in trade, 2010
Source: UNCTAD-EORA GVC Database, UNCTAD estimates.
Global gross exports “Double counting” (foreign value added
in exports)
Value added in trade
~19 ~5
~14 28%
$ Trillions ESTIMATES
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Which countries use more imported value added to generate their exports?
Foreign value added in trade, by region, 2010
Source: UNCTAD-EORA GVC Database.
14%
13%
14%
21%
31%
21%
16%
11%
30%
27%
14%
22%
18%
11%
39%
31%
28%
Least Developed Countries
Transition Economies
South America
Caribbean
Central America
Latin America and Caribbean
West Asia
South Asia
East and South-East Asia
Asia
Africa
Developing Economies
Japan
United States
EU
Developed Economies
Global
Memorandum item:
Developing country average
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Which sectors have the most segmented value chains?
Share of foreign value added in exports, by sector, 2010
Source: UNCTAD-EORA GVC Database.
9.6%
29.4%
14.2%
Primary
Secondary
Tertiary
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Which industries have the most segmented value chains?
Share of foreign value added in exports, top 10 industries and top 5 services industries, 2010
Source: UNCTAD-Eora GVC Database. Note: Based on 42 industries at various levels of industry classification.
1
2
3
4
5
6
7
8
9
10
..
27
28
30
31
38 Finance
Post and telecommunications
Electricity, gas and water
Research and development
Construction
….
Metal and metal products
Manufacture of basic chemicals
Rubber and plastic products
Manufacture of other transport equipment
Manufacture of electrical machinery and apparatus n.e.c.
Manufacture of man-made fibres plastics and synthetic rubber
Coke, petroleum products and nuclear fuel
Manufacture of radio, television and communication equipment
Manufacture of motor vehicles, trailers and semi-trailers
Manufacture of office, accounting and computing machinery
0 10 20 30 40 50%
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How much does value added trade contribute to countries’ GDP?
Domestic value added in trade as a share of GDP, by region, 2010
Source: UNCTAD-EORA GVC Database.
26%
30%
14%
27%
22%
16%
37%
18%
24%
25%
30%
28%
13%
12%
26%
18%
22%
Least Developed Countries Memorandum item:
Transition Economies
South America
Caribbean
Central America
Latin America and Caribbean
West Asia
South Asia
East and South-East Asia
Asia
Africa
Developing Economies
Japan
United States
EU
Developed Economies
Global
Developing country average
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Which regions participate more in GVCs?
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Which countries show the highest GVC participation?
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Contents
▪ Value added trade in the global economy
▪ GVCs: the trade-investment nexus
▪ The development impact of GVCs
▪ The way forward: a policy analysis agenda
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What is the role of TNCs in shaping value added trade patterns?
Global trade (exports of goods and services), by type, 2010
Source: UNCTAD estimates, based on WIR12 (table I.8); BEA; EFIGE; Altomonte et al. 2012.
~15 ~6.3
~2.4
~6.3
ESTIMATES $ Trillions
~19 ~4
Global trade in goods and services
Non-TNC trade
All TNC-related trade
Intra-firm trade
NEM-generated trade
TNC arm's length trade
Total trade within the international production networks of TNCs:
~80%
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What is the role of TNCs in shaping value added trade patterns?
Source: UNCTAD-EORA GVC Database, UNCTAD FDI Database.
7% 11% 7%
71%
43%
26%
22%
46%
64%
Gross exports
Value added inputs to exports
Inward FDI stock
Services
Manufacturing
Primary sector
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How does FDI affect countries’ GVC participation? Correlation between levels of inward FDI stock and GVC participation
Source: UNCTAD-EORA GVC Database, UNCTAD FDI Database, UNCTAD analysis (based on datapoints for 187 countries over 20 years).
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How does FDI affect countries’ GVC participation?
Foreign value added in export GVC participation
Contribution of value added trade to GDP
18%
17%
24%
34%
46%
48%
54%
58%
21%
24%
30%
37% 1st quartile (Countries with high FDI stock relative to GDP)
2nd quartile
3rd quartile
4th quartile (Countries with low FDI stock relative to GDP)
Key value added trade indicators (median values), by quartile of FDI stock relative to GDP, 2010
Source: UNCTAD-EORA GVC Database, UNCTAD FDI Database, UNCTAD analysis (based on 180 countries).
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Contents
▪ Value added trade in the global economy
▪ GVCs: the trade-investment nexus
▪ The development impact of GVCs
▪ The way forward: a policy analysis agenda
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What is the impact of value added trade and GVCs on development?
78
910
11G
DPp
c
10 12 14 16 18 20GVC participation
Developed Countries - logsGVC Participation vs GDP per Capita
46
810
12G
DPp
c
10 12 14 16 18 20GVC participation
Developing Countries - logsGVC Participation vs GDP per Capita
Correlation between growth in GVC participation and GDP per capita
Source: UNCTAD-EORA GVC Database, UNCTAD analysis (based on datapoints for 187 countries over 20 years).
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What is the impact of value added trade and GVCs on development?
GDP per capita growth rates for countries with high/low growth in GVC participation, and high/low growth in domestic value added share, 1990-2010
* Data for 125 developing countries, ranked by growth in GVC participation and domestic value added share; high includes the top two quartiles of both rankings, low includes the bottom two; GDP per capita growth rates reported are median values for each quadrant.
Source: UNCTAD.
GVC participation growth rate
Growth of the domestic value added component of exports
Low
Low
High
High
+ 2.2% + 3.4%
+ 0.7% + 1.2%
ʺIntegrating in GVCsʺ
ʺIncreasing dmoestic value addedʺ
+ n.n% median GDP per capita growth rates =
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What different GVC development paths can be distinguished?
Source: UNCTAD.
+ 2.2% + 3.4%
+ 0.7% + 1.2%
ʺIntegrating in GVCsʺ
ʺIncreasing domestic value addedʺ
ʺPreparingʺ
ʺUpgradingʺ
ʺEngagingʺ ʺCompetingʺ
ʺConvertingʺ ʺLeapfroggingʺ
CONCEPTUAL
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Major preliminary findings
Global investment and trade are inextricably intertwined through the international production network of firms…
GVCs are responsible for the growing significance of “double counting” in global trade figures
GVCs make extensive use of services (almost 50% of value added inputs to exports is contributed by service sector activities)
The majority of developing countries, including the poorest, are increasingly participating in GVCs
Countries with a higher presence of FDI relative to the size of their economies tend to have a high level of participation in GVCs (and a greater relative share in value added trade compared to their share in global exports)
GVC links in developing countries can play an important role in economic growth
There appear to be a number of distinct GVC development paths for developing countries
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Contents
▪ Value added trade in the global economy
▪ GVCs: the trade-investment nexus
▪ The development impact of GVCs
▪ The way forward: a policy analysis agenda
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The way forward: a policy analysis agenda
Some key questions to answer:
▪What are the implications of new insights on GVCs for investment and trade theory?
▪What are the drivers and determinants of investment in GVCs?
▪Should developing countries adopt specific policies in their development strategy to increase GVC participation?
▪If so, under what circumstances, with what criteria?
▪What policies can maximize the benefits and minimize the negative effects of GVCs?
▪…
UNCTAD will aim to answer these
and other questions in the
World Investment Report 2013 to be
launched on 26 June