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2014/SOM2/CTI/DIA3/006
Macroeconomics in a World with Global Value Chains
Submitted by: IMF
Public-Private Dialogue on Building Asia Pacific Partnership Through Global
Value Chains Collaboration Qingdao, China
12 May 2014
5/13/2014
1
International Monetary FundStrategy, Policy, and Review Department
Ranil SalgadoMay 12, 2014
This presentation should not be reported as representing the views of the IMF. The views expressed in this presentation are those of the presenters and do not necessarily represent those of the IMF or IMF policy. It includes a description of research in progress by the presenters and are presented to elicit comments and further debate.
Trade imbalance disputes E.g., gross trade data can exaggerate the importance
of producing economies at the end of value chains (downstream economies)
Effects of exchange rate changes E.g., non-symmetric rebalancing effects between
downstream and upstream economies
Trade spillovers E.g., a sharp decline in durable goods demand in
upstream economies leading to a collapse of exports in downstream economies in 2008-09
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Jobs and growth Does off-shoring lead to losses of domestic jobs?
Does it lead to higher productivity and growth?
The notion of competitiveness How do we incorporate intermediate inputs trade
into measures of competitiveness?
Trade policy and beyond How does “supply-chain trade” (i.e. cross-border
flows of goods, investment, services, know-how, people associated to GVCs) affect trade policy?
Jobs & Growth
Exchange Rates & Competitiveness
Trade Policy & Negotiations
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3
0
5
10
15
20
25
30
35
40
45
1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009
North EA
South EA
OtherEU
China Japan USA Asia-Pacific
ROW
Gross exports Value-added exports
Gross- and Value-Added Exports(percent of GDP)
Sources: WIOD, Fund staff estimates.
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
199519961997199819992000200120022003200420052006200720082009
ROW Asia-Pacific USA JapanChina Other EU South EA North EA
Net Exports(percent of world output)
Sources: WIOD, Fund staff estimates.
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4
0
5
10
15
20
25
199519961997199819992000200120022003200420052006200720082009
ROW Asia-Pacific USA JapanChina Other EU South EA North EA
World Value-Added Exports(percent of world output)
Sources: WIOD, Fund staff estimates.
0
2
4
6
8
10
12
14
199519961997199819992000200120022003200420052006200720082009
ROW Asia-Pacific USA JapanChina Other EU South EA North EA
World Labor-Income Exports(percent of world output)
Sources: WIOD, Fund staff estimates.
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5
0
5
10
15
20
25
199519961997199819992000200120022003200420052006200720082009
other services finance durable nodurable primary
World Value-Added Exports: by Sector(percent of world output)
Sources: WIOD, Fund staff estimates.
AUS
BRA
CHN
CZE
DEU
ESP
EST
IRL
JPN
KOR
MEX
TWN
USA0
0.1
0.2
0.3
0.4
0.5
0.6
0.5 0.6 0.7 0.8 0.9 1
Valu
e-A
dded
Exp
orts
(sha
re in
GD
P)
VAX Ratio (Value-Added Exports to Gross Exports)
Vertical Specialization and Value Added Exports: 2009
Sources: WIOD, Fund staff estimates.
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Static Panel Data Analysis1
Sample Period: 1996-2008Dependent Variable:
(1) (2) (3) (4)
gross exports (growth) 0.020
gross imports (growth) 0.061**
gross exports (relative to GDP)2 -0.015
value-added exports (growth) 0.041* 0.043* 0.045*
value-added imports (growth) 0.053** 0.049** 0.046*
value-added exports (relative to GDP)2 0.115* 0.148** -0.320*
VAX ratio 0.097 -0.242
value-added exports x VAX ratio 0.621**
R2 0.417 0.422 0.424 0.431
No of countries 40 40 40 40
No of observations 533 533 533 533
Sources: WIOD, Fund staff estimates.1 The Fixed Effects (FE) estimator with period dummies is used. The explanatory variable is of previous period. ** and * denotes statistical significance at the 1- and 5-percent levels, respectively.2 Exports to GDP ratios are normalized to take values upto 1.
output (growth)
Jobs & Growth
Exchange Rates & Competitiveness
Trade Policy & Negotiations
5/13/2014
7
GVCs have important implications for measures of competitiveness, namely the real effective exchange rate (REER). The standard REER computed at the Fund is based on the
assumption that goods traded are final goods only.
Given that trade in intermediate goods is now more than two thirds of total trade, this may be problematic. Changes in exchange rate are more complex. E.g., a nominal appreciation makes goods more expensive
to export, but also intermediate inputs cheaper to import.
Standard REER:
Pj: price of goods; Rj: exchange rate; wjk: gross trade weights.
REER in “Tasks”:
qj: price of production factors; vjk: value-added trade weights.
REER in “Goods”:
one capturing competitiveness of domestic value-added (DVA) part of gross exports and the other foreign value-added (FVA) part.
ωjk captures relative importance of FVA vis-à-vis DVA as well as relative importance among source economies comprising FVA.
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A Comparison between Standard REER and Two Alternatives
Source: OECD Input-Output Database, OECD Bilateral Trade Database, Fund staff estimates.
5060708090
100110120130140150
1990
M1
1992
M1
1994
M1
1996
M1
1998
M1
2000
M1
2002
M1
2004
M1
2006
M1
2008
M1
2010
M1
China (Index, 1990M1 = 100)
5060708090
100110120130140150
1990
M1
1992
M1
1994
M1
1996
M1
1998
M1
2000
M1
2002
M1
2004
M1
2006
M1
2008
M1
2010
M1
Standard
REER-in-Tasks
REER-in-Goods
United States (Index, 1990M1 = 100)
5060708090
100110120130140150
1990
M1
1992
M1
1994
M1
1996
M1
1998
M1
2000
M1
2002
M1
2004
M1
2006
M1
2008
M1
2010
M1
Germany(Index, 1990M1 = 100)
50
70
90
110
130
150
170
190
1990
M1
1992
M1
1994
M1
1996
M1
1998
M1
2000
M1
2002
M1
2004
M1
2006
M1
2008
M1
2010
M1
Japan(Index, 1990M1 = 100)
-60
-40
-20
0
20
40
60
80
100
TWN
MEX
GBR JPN
USA ISR
CHL
ZAF
KOR
DEU
SWE
FIN
FRA
AUT
SVN
DN
KPO
LBE
LSG
PIT
ATH
AN
LD TUR
LUX
PRT
NO
RIN
DVN
MES
PG
RC IRL
CHE
CHN
CAN
NZL EST
HU
NID
NRO
UBR
AAU
SSV
K
REER-in-Tasks
Standard REER
REER-in-Goods
Changes in Standard REER and Two Alternatives(cumulative percentage change, 2000-11)
Sources: OECD, Fund staff estimates.
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A first attempt to examine the empirical relevance of these new approaches finds that: Incorporating GVCs (both approaches) is complex
but can be a beneficial addition to the surveillance work; and
It is useful to monitor REERs computed using alternative price measures.
Further work on measurement and the applicability of these indices is however needed to operationalize these indices fully.
Jobs & Growth
Exchange Rates & Competitiveness
Trade Policy & Negotiations
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GVCs have been accompanied by a fall in the use of traditional protectionist measures. Tariffs, particularly on parts and components,
have been unilaterally reduced (Baldwin, 2012) GVCs are widely seen as a muting factor of trade
protectionism during the financial crisis (Gawande, Hoekman, and Cui, 2011).
However, traditional trade restrictiveness measures have a negative impact on growth and resilience of GVCs (next slide).
Static Panel Data Analysis1
Sample Period: 1995-2005Dependent Variable:
(1) gross (2) value added
OTRI2 -0.043 -0.181**
R2 0.973 0.971
No of countries 33 33
No of observations 373 373
Sources: Fund staff estimates.1 The FE estimator with period dummies is used. The explanatory variable is of previous period.2 The OTRI from the UNCTAD. 3 Exports to GDP ratios are normalized to take values upto 1.
Exports to GDP Ratio3
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Non-tariff measures (NTMs) are more important to supply-chain trade than tariffs Importance of trade facilitation bottlenecks, e.g.
transport, border management (Arvis et al., 2013).
Anecdotal evidence on the role of NTMs on development of GVCs (WTO, 2012; WEF, 2013).
Side note: How exchange rate volatility affects supply chain trade is an open question.
Why are NTMs more relevant for supply-chain trade?
The rise of GVCs creates a strong trade-investment nexus (next slide).
This nexus affects the boundary between trade and domestic policy Domestic policy environment is relevant to anchor to
GVCs (Baldwin, 2011). NTMs create new cross-border policy spillovers(Antras
and Staiger, 2012).
“Deep” disciplines are often included in new FTAs, creating a two-way relationship with GVCs Core deep disciplines cover IPR, investment, competition
policy, capital movements (WTO, 2011).
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Static Panel Data Analysis1
Sample Period: 1995-2008Dependent Variable:
total final interm.
FDI2 0.041** 0.067** 0.032** 0.023**
R2 0.960 0.942 0.966 0.968
No of countries 31 31 31 31
No of observations 370 370 370 370
Sources: Fund staff estimates.1 The Fixed Effects (FE) estimator with period dummies is used. The explanatory variable is of previous period. ** and * denotes statistical significance at the 1- and 5-percent levels, respectively.2 FDI as a share of GDP, calculated using the OECD FDI Multilateral Position data.3 Exports to GDP ratios are normalized to take values upto 1.
Exports to GDP Ratio3
(1) gross (2) value added
Improving resilience of GVCs requires maintaining an open trading system Monitoring protectionism and addressing trade
facilitation bottlenecks.
Deep FTAs as negotiating forums to discipline GVCs create challenges and opportunities. FTAs address governance concerns, but risk segmenting
the multilateral trading system.
Monitoring of capital and trade flows (and controls) should be carried out in tandem. The two-way relationship between deep FTAs and GVCs
has macroeconomic consequences (e.g. trade spillovers can be affected by FTAs).
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• Being part of GVCs is associated with higher growth, the contribution of which increases as an economy moves up the value chain.• Incorporating GVCs in measuring competitiveness is complex, but preliminary work shows that it provides new insights and improves the fit of trade data. • The growth of GVCs is changing the role of traditional trade policies, behind-the-border measures, and FTAs. More coordination in policy making is needed within- and across-economies.
