Mapping Global Value Chains Koen De Backer Sébastien Miroudot OECD

Final WIOD Conference: Causes and Consequences of Globalization Groningen, The Netherlands, April 24-26, 2012.

Why focusing on GVCs? • A value chain can be defined as “the full range of activities

that firms and workers do to bring a product from its conception to its end use” (Gereffi and Fernandez-Stark, 2011).

• The fact that they are increasingly spread over several countries explains why value chains are regarded as “global”.

• The concept of GVC was introduced in the early 2000s and has been successful in capturing several characteristics of the world economy: – The increasing fragmentation of production across countries

– The specialisation of countries in tasks and business functions rather than specific products

– The role of networks, global buyers and global suppliers

Why mapping GVCs is important

1. Trade policy

2. Trade and employment

3. National competitiveness and growth

4. Moving up the value chain and innovation

5. Global systemic risk

GVC indicators

• Participation in GVCs: to what extent are countries participating in GVCs – Import content (or foreign VA content) of exports – GVC participation index: imports and exports of inputs used

in third countries (e.g., Koopman et al., 2011)

• Length of GVCs: how many production stages in GVCs – Average propagation length (APLs) – Index of the number of production stages (Fally, 2011)

• Position of countries in GVCs: where are countries

positioned in GVCs – VA as a percentage of gross output – Distance to final demand index (Fally, 2011)

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New data available at the OECD

• Bilateral Trade Database by Industry and by End-Use (BTDIxE)

• OECD inter-country input-output tables • OECD ORBIS firm-level data

5

The OECD Inter-Country Input-Output tables

• Three global input-output matrices estimated for the years 1995, 2000 and 2005

• Based on national input-output tables harmonised by the OECD

• Cover 56 countries and 37 industries • Linked internationally using the Bilateral Trade by

Industry and End Use (BTDIxE) database and estimates of bilateral services trade flows.

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Country 1 Country 1 Country 1 Country 2 Country 2 Country 2 … Country1 Country 2 …Industry 1 Industry 2 … Industry 1 Industry 2 … …

Country 1 Industry 1Country 1 Industry 2 …Country 1 …Country 2 Industry 1Country 2 Industry 2 …Country 2 …… … . .… … . .… … . .Value-addedGross output

Total intermediate

Components of final demand

Use of domestic inputs

Use of domestic inputsUse of foreign inputs

Use of foreign inputs

Interindustry transactions

Participation in GVCs • The import content of exports (or foreign VA content of

exports) only looks backward: countries at the beginning of the value chain do not seem to participate in GVCs.

• Following Koopman et al. (2011) the GVC participation index adds the foreign value-added in exports and the share of domestic VA in exports of intermediate inputs used for exports in third-countries.

• The GVC participation index for country i and industry k is:

where FV is the foreign VA embodied in gross exports E and IV the domestic VA embodied in third countries’ gross exports (IV).

ik

ik

ik

ik

EIV

EFV

+=ikipationGVC_Partic

GVC participation index in OECD countries, 2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

Cze

ch R

epub

lic

Luxe

mbo

urg

Est

onia

Sl

ovak

Rep

ublic

H

unga

ry

Slov

enia

Fi

nlan

d B

elgi

um

Irel

and

Kor

ea

Aus

tria

D

enm

ark

Swed

en

Nor

way

Po

rtug

al

Net

herl

ands

Fr

ance

It

aly

Spai

n Po

land

Tu

rkey

C

hile

Is

rael

Sw

itze

rlan

d G

erm

any

Uni

ted

Kin

gdom

A

ustr

alia

G

reec

e U

nite

d St

ates

Ja

pan

Can

ada

New

Zea

land

M

exic

o

Source: OECD ICIO model, indicator based on Koopman et al. (2011)

GVC participation index in selected non-OECD countries, 2005

Source: OECD ICIO model, indicator based on Koopman et al. (2011)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Number of production stages • Following Fally (2011), we calculate an index

measuring the number of production stages as:

where μij is the value of inputs from industry j used to produce one dollar of goods in industry i.

• With one equation for each industry, we solve this system of linear equations (that has a unique solution) to calculate Ni

• As we use an international I/O table, we can decompose Ni into its domestic and international component.

Average length of GVCs (2005)

1

1.2

1.4

1.6

1.8

2

2.2

2.4

1995 2000 2005

International Domestic

Source: OECD ICIO model, indicator based on Fally (2011) 11

Length of GVCs, by industry (2005)

12

1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0

Mot

or v

ehic

les

Bas

ic m

etal

s E

lect

rica

l mac

hine

ry

Text

ile

Food

R

ubbe

r &

pla

stic

s TV

& c

omm

. equ

ip.

Mac

hine

ry &

equ

ip.

Off

ice

& c

ompu

ting

mac

h.

Man

ufac

turi

ng n

ec

Che

mic

als

Fabr

icat

ed m

etal

pro

duct

s W

ood

Oth

er tr

ansp

ort e

quip

men

t C

onst

ruct

ion

Pape

r O

ther

non

-met

allic

Fu

el

Med

ical

& o

ptic

al in

str.

U

tilit

y Tr

ansp

ort a

nd s

tora

ge

Hot

els

& r

esta

uran

ts

Agr

icul

ture

O

ther

soc

ial s

ervi

ces

Oth

er B

usin

ess

Act

ivit

ies

Post

& te

leco

ms

Min

ing

and

quar

ryin

g H

ealt

h &

soc

ial w

ork

Who

lesa

le &

ret

ail t

rade

Fi

nanc

e &

insu

ranc

e C

ompu

ter

& r

el. a

ctiv

itie

s Pu

blic

adm

in.

Res

earc

h &

dev

elop

men

t R

enti

ng o

f equ

ip.

Rea

l est

ate

Edu

cati

on

Domestic International

Source: OECD ICIO model, indicator based on Fally (2011)

Distance to final demand

• Second indicator proposed by Fally (2011). • Di reflects the number of production stages

between the production of a good i and final demand. The index is calculated as:

where φij is the fraction of production from industry i used as an intermediate in industry j.

∑+=j

jiji DD ϕ1

Distance to final demand, by economy, 1995 and 2005

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1995 2005

Source: OECD ICIO model, indicator based on Fally (2011)

GVC participation and distance to final demand: motor vehicle industry

15

1

1.5

2

2.5

3

3.5

4

4.5

5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Distance to final demand (right axis) GVC participation (left axis)

Source: OECD ICIO model, indicator based on Koopman et al. (2011) , Fally (2011)

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0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

1

1.5

2

2.5

3

3.5

4

4.5

5

Distance to final demand (left) GVC participation index (right)

GVC participation and distance to final demand: computer services

Source: OECD ICIO model, indicator based on Koopman et al. (2011) , Fally (2011)

Trade network of intermediate inputs: motor vehicle industry

17 Source: OECD BTDIxE database

Main findings

1. Increasing importance of GVCs 2. Larger versus smaller countries

3. Not only Asia, but also NAFTA and EU

4. Emerging economies integrating GVCs

and specializing in inputs

Issues and next steps

• Improving the methodology, refining the indicators – Aggregation and homogeneity bias – Identification of trade in services – Conciliating trade statistics with national

accounts across different countries

• Time lag in the data, updating • More case studies and network analysis

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