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Give credit where credit is due: Tracing value added in global production chains. William Powers United States International Trade Commission with Robert Koopman, Zhi Wang, and Shang-Jin Wei February 4, 2011.

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give credit where credit is due tracing value added in global production chains

Give credit where credit is due: Tracing value added in global production chains

William Powers

United States International Trade Commission

with Robert Koopman, Zhi Wang, and Shang-Jin Wei

February 4, 2011

The views expressed here are solely those of the presenter. This presentation is not meant to represent the views of the USITC or any of its Commissioners.

presentation outline
Presentation outline
  • Global value chain: nature and measures
  • Conceptual framework and its contribution
    • Three important matrices based on block-matrix formulation
    • Integration of other measures in the literature
    • Decomposition of gross exports completely into value-added components
  • Empirical results
    • Highlight regional differences in supply chain participation
    • Show differences in trade costs from multistage production
  • Database improvements and limitations
    • Extensions of the GTAP database
    • Connection to official statistics
value chains from a product view to a global view
Value chains,from a product view to a global view
  • What is a global value chain?
    • A system of value-added sources and destinations within a globally integrated production network
  • Literature
    • Single product: Dedrick, Kraemer, and Linden (2008)
    • Single country: Hummels, Ishii, Yi (2001), Koopman et al (2008)
    • Asian regional chains: Pula and Peltonen (2009); Wang, Powers, and Wei (2009)
    • Global snapshot: Daudin, Rifflart, and Schweisguth (2010); Johnson and Noguera (2010)
    • Global time series: Erumban et al. (2010); Wang et al. (2010)
global value chains multiple measures
Global value chains: Multiple measures
  • Hummels, Ishii, and Yi (2001) measures of vertical trade
    • VS: share of imported inputs in exports
    • VS1: share of exports sent indirectly through third countries
  • Newer measures
    • VAX: domestic value-added in exports (Johnson and Noguera)
    • VS1*: domestic value-added that returns home (Daudin et al.)
      • aka “reflected” exports
  • Not previously unified in a fully specified framework – turn to this next
slide5

Value-added framework:

Gross output in a two-country world

  • All output is used as an intermediate or final good at home or abroad
  • with N goods,
  • Xr: (N×1) Gross output of country r
  • Ars: (N×N) IO Coefficient matrix giving use in country s of intermediates from r
  • Yrs: (N×1) Final demand: Country s’s use of final goods from country r
production system in a two country world
Production system in a two-country world
  • In block matrix notation
  • Rearranging,

where

Bsr: (N×N) block Leontief inverse matrix, denoting the amount of

total output in s required for a one-unit increase in final

demand in country r

Yr: (N×1) vector of global use of r’s final goods

value added in production
Value added in production
  • Direct domestic value added in production:

and

  • Value-added shares matrix (2×2N) decomposes value added in production of each sector in all countries

where

Vr: (1×N) domestic value-added coefficient vector;

element vri = 1 – intermediate input share from all countries

u: (1×N) vector of ones

value added exports
Value-added exports

(See paper for value-added exports at the product level)

  • Exports (2N×2) include both intermediate and final goods
  • Value-added exports matrix (2×2)
  • Fully generalizable to a many-country world
incorporates all value added measures

Domestic value added in exports (VAX ratio)— includes VS1*

Indirect (VS1): Country 1’s value added embodied in 2’s and 3’s exports

Direct (VS): Foreign value added from 2 and 3 embodied in country 1’s exports

Incorporates all value-added measures
  • Vertical specialization: both direct (VS) and indirect (VS1)
  • Domestic value added in exports (VAX)
  • Domestic value added that returns home (VS1*)
completely decomposes gross exports

Gross exports

Domestic value added in exports (VAX)

Domestic value added that returns from abroad (VS1*)

Foreign value added in exports (VS)

Exports consumed by direct importer

Indirect exports sent to third countries

Final goods

Final goods

Final goods

Inter-mediate inputs

Inter-mediate inputs

Inter-mediate inputs

Further downstream

Further upstream in GVCs

Indirect value-added exports (VS1)

Completely decomposes gross exports
decomposition of gross exports
Decomposition of gross exports

Australia, New Zealand

Japan

EU 15

United States

EFTA

Canada

India

South Asia

Rest of East Asia

Indonesia

China

Vietnam

Thailand

Malaysia

Philippines

Hong Kong

Korea

Taiwan

Russian Federation

Brazil

Rest Latin America

Rest of the world

South Africa

EU accession countries

Mexico

World average

0

20

40

60

80

100

Share of Gross Exports

Domestic VA

Domestic VA returned

Foreign VA

Advanced economies

Emerging Asia

Asia NICs

Other emerging

supply chain participation key differences by region
Supply chain participation:Key differences by region

Japan sends much of its domestic value to final suppliers indirectly through third countries (see table 3)

Australia, New Zealand

US uses lots of imported inputs in its exports; imported value supplied by Canada, Mexico, and US itself

Japan

EU 15

United States

EFTA

Canada

India

South Asia

Rest of East Asia

Indonesia

E. Asia has the longest chains–little of its exported value is absorbed by direct importer (see table 3)

China

Vietnam

Thailand

Malaysia

Philippines

Hong Kong

Korea

Taiwan

East Asia has the most foreign content in its own exports

Russian Federation

Brazil

Rest of Americas

Rest of the world

South Africa

Integration in NAFTA makes Mexico an outlier among non-Asian economies

EU accession countries

Mexico

World average

0

20

40

60

80

100

Share of Gross Exports

Domestic VA

Domestic VA returned

Foreign VA

Advanced economies

Emerging Asia

Asia NICs

Other emerging

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trade costs of multistage production
Trade costs of multistage production

Trade costs (tariff + transport), as a share of export value

  • East Asia pays a price for its long chains and relatively high tariffs
  • Advanced economies have low foreign content and, hence, low costs

Trade costs on exports

Trade costs on imported inputs

12

database development estimating a global inter region io table
Database development:Estimating a global Inter-Region IO table
  • Start with 2004 GTAP global trade and prod’n database
  • Add additional detail on source and use of intermediate inputs and final goods (elements of Ars)
  • Use end-use categories of detailed trade data (HS6) to improve imported intermediate use coefficients
    • UN Broad Economic Classification (BEC) distinguishes intermediate inputs from final goods in imports from each source in each sector
    • BEC is better than the alternative: Proportional method assumes the intermediate share in imports from each source is the same as in the home country’s domestic supply
slide15

BEC shows substantial export heterogeneity

Intermediate share of U.S. electronic machinery imports, by source

Share from US import use table (54.2%)

benefits and limitations of end use classifications
Benefits and limitations of end-use classifications
  • End-use classifications improve estimates of intermediate inputs entering the importing country
  • Still have to assume proportionality to allocate intermediate inputs to each industry within the importing country
    • Required data not reported by most national statistical agencies
    • Problem noted by Committee on Economic Statistics of the American Economic Association (Feenstra et al., 2010)
  • Industry-level estimates of value-added trade may be unreliable with unknown biases, despite their theoretical tractability
conclusions
Conclusions
  • New value-added framework
    • Generalizes and harmonizes all measures in the literature
    • Accounts for the entirety of gross trade
    • Provides new detail on regional differences in supply chain activity and costs
  • It is now possible to measure trade in value-added terms consistent with official statistics
    • Ideal database would be consistent with both official trade statistics and national income accounts

16

questions comments
Questions/Comments?
  • Contact information
    • Bill Powers
    • Research Division, Office of Economics
    • U.S. International Trade Commission
    • william.powers@usitc.gov
    • (202) 708-5405

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