identifying hubs and spokes in global supply...

Identifying hubs and spokes in global supply chains

with redirected

trade in value added

Paul Veenendaal

Arjan Lejour

Hugo Rojas-Romagosa

Outline

• Background and purpose

• Methodology

• global input-output analysis

• focus on trade redirection

• explanation of trading schemes

• Results

• hubs in electronics and other business services

• hub development over time in China, EU12 and other NAFTA

• Some conclusions

CPB Netherlands Bureau for Economic Policy Analysis

Background

• Hype in attention for trade in value added (WTO, World Bank, OECD, etc.)

• Inspiring articles:

- J&N: Johnson, R. C. and Noguera, G. (2012), Accounting for Intermediates: Production Sharing and Trade in Value Added, Journal of International Economics, 86(2):224-236

- KPWW: Koopman, R., Powers,W., Wang, Z. and Wei, S.-J. (2010), Give Credit where Credit is Due: Tracing Value Added in Global Production Chains, NBER Working Paper 16426

• Predecessor of the current paper is

- LRV1: Lejour, A., Rojas-Romagosa, H. and Veenendaal, P. (2012),The Origins of Value in Global Production Chains, study for DG TRADE

• Today I extend in my presentation the analysis of the paper with

- a new concept: factory gate value added exports

- redirection via intermediate exports

- these extensions are available in a draft paper at the GTAP-website

3 Washington DC, April 16 2013


Purpose

• Can we retrieve meaningful information from global input-output tables about the most important hubs and spokes at the level of the industry of end-use?

• Some examples:

- electronics production in China, South-East Asia and East Asia

- motor vehicle assembly in EU12, Mexico, Japan, etc.

- airplane construction in USA and EU15

• We aim to identify at the industry level

- the ‘hubs’ that convert intermediate output imports into exports

- their most important suppliers and customers

- and the regions that do not supply

4

Washington DC, April 16 2013


Approach (1)

• Take the datasets from GTAP for 2001, 2004 and 2007

- these datasets link national input-output tables with bilateral trade statistics

- 57 industries, 84 different countries/regions

• Construct global input-output tables from the datasets

- main proportionality assumption used: all incoming imports at the industry level are allocated to intermediate and final use in proportion to the row of the import matrix of the importer

› hence, for example, German electronics imports from China and German electronics imports from the US are allocated to use categories in Germany in exactly the same proportions



Approach (2)

• Derive suitable indicators that identify the hubs and spokes at the industry level

- we base these on redirected trade in value added: intermediate value added imports that are exported again by the one but last country in the chain

- this country is

› either the final output producer producing for foreign final users

◦ exporting intermediate value added exports via final output exports (type I redirection); focus of the paper

› or the last exporter to the final output producer producing for the home market

◦ exporting intermediate value added imports via intermediate value added exports (type II redirection); extra in my presentation



Structure of the global input output tables

• For a three region world example with regions:

• S is an (industry by industry) matrix of intermediate output deliveries, f a vector of final output deliveries by industry, x a vector of gross outputs by industry and w’ a row vector of value added by industry

r

rr r r r r r r

r

r

r

r

r

r

S S S f f f x

S S S f f f x

S S S f f f x

w w w

x x x


, and r M


Leontief arithmetic (condensed notation)

We summarize the global table with

and define input coefficients for intermediates and value added as

and

Then, using as an index for the global aggregate over regions,

in which B denotes the global Leontief inverse and is global final output use.

S F x

w

x

( , , , ) ( , , , ) / ( , )A r i s j S r i s j x s j ( , ) ( , ) / ( , )v r j w r j x r j

1( )w w wx Ax f I A f Bf

wf


w


Leontief arithmetic: going quadrangular

Defining

- the exports of final output from to as

- the local Leontief inverse of country r as

And using

- the ^ symbol to denote a matrix with a vector on its main diagonal and zeroes elsewhere

- as a toggle which is one if and zero elsewhere

Consider:

gross exports

value added exports

This matrix gives all values added that are required from for the exports of final j-output from to .

Note that we exclude domestic value added for domestic final output production that is used at home.


f

rs r s

ˆ(1 )( )rs rs rs s r sA B I f

1ˆrs r rr rs

1

rr


With these definitions we obtain:

• the well-known result that all value added exports are absorbed in final output

• because the relation of gross exports of final output with value added exports is so clear, we restrict ourselves to analysing intermediate gross and value added trade

and


10

1 ˆrs

r s

f f

ˆ(1 )rs rs rs sA B f

1ˆrs r rr rs


Then we obtain: the importance of ‘imports in exports’

Intermediate gross exports

Intermediate gross imports

We learn four things from this:

• the VS and VAX-ratio’s are complements

• the aggregate trade balance is the same in gross trade and in value added trade: imports in exports cancel

• they don’t cancel in the bilateral trade balance though: hence the imports in Chinese exports to the USA exceed the imports in US exports to China (and this may be just a volume effect)

• value added imports have passed through the chain but value added exports are just at the beginning of the chain


11

rs sr rs

s s s

sr sr r sr

s s s

VS

VS


Type I redirection in a triangular trading scheme:


12

February

7 2013

Trade redirection

r

Indirect exports to

Redirected

imports Absorbed imports


Type I redirection in a quadrangular trading scheme:


13 February

7 2013

r s

Indirect imports of Direct exports to

Redirected imports Absorbed imports

Indirect exports via

direct trading partner s


Type I redirection in a full trading scheme:


14

r

Indirect imports of Direct exports to

Redirected imports Absorbed imports

2s3s cs s

Indirect exports through the chain


Type II redirection in a full trading scheme:


15

Absorbed imports

2 3 c

Imports from Imports from Imports from r 2s 1cs

Redirected type II

imports of

Redirected type I imports


Factory gate exports


16

Final user

Final producer 1 2 3 1 2 3 1 2 3

Origin Last exporter

1

2

3

1

2

3

1

2

3

Shipments from 1:

Shipments from 2:

Shipments from 3:

3

1 2 3

1

2


Collecting type I and type II redirection from the factory gate exports table


17

Final user


Origin Last exporter

1

2

3

1

2

3

1

2

3

Redirected by 1 of which type II excluding exports

Redirected by 2 by the first and last

Redirected by 3 exporter

1 2 3

1

2

3


Factory gate exports that are not redirected


18

Final user


Origin First and last exporter

1

2

3

1

2

3

1

2

3

3

1 2 3

1

2


Calculating factory gate exports • We had to restrict the size of the global system to 12 sectors and 12

regions/countries to make the calculations feasible

• The decay in the chain was about 6.7

• We chose the cut-off at the 4th position in the chain

• After the cut-off only 0.1% of factory gate exports was still wandering in the chain

• All figures and tables in this presentation are based on the concept of factory gate exports

• The figures are very similar to those in the paper


19


Composition of global value added exports


20

2001 2004 2007

Own value added in own final output exports 38 36 33

Factory gate exports 62 64 67

Direct for own final output use 45 45 48

Direct for final output exports (type I) 7 7 7

Redirected for own final output use (type II) 9 10 11

Redirected for final output exports (type I) 2 2 2

Total redirection 17 19 19

Total 100 100 100


Country classification in results

EU15: Old member states

EU12: New member states

OWE: Other western Europe

OEE: Russia and other eastern Europe

IND: India

CHH: China and Hong Kong

EAS: East Asia

SEA: South-East Asia

JPN: Japan

USA: United States of America

ONA: Other Nafta

ROW: Rest of World



Industry classification in results

AGO: Agriculture and raw materials

ENG: Energy

LTM: Low-tech manufacturing

MLM: Medium-low tech manufacturing

CRP: Chemical, rubber and plastic products

MVH: Motor vehicles and parts

OTN: Transport equipment nec

OME: Machinery and equipment nec

ELE: Electronic equipment

TRA: Transport

OBS: Business services

OCS: Other commercial services

OSR: Other services



Type I and Type II redirection as a % of value added exports, 2007


24


Total redirection of value added for electronics end-use, 2007


EU15

EU12

OWEOEE

China

India

EAS

SEA

Japan

USAONA

ROW

Average

0

5

10

15

20

25

30

35

40

0 10 20 30 40 50 60 70 80 90

GS

FR

V

SFRV


Redirection of domestic value added for electronics, 2007


EU15

EU12OWE

OEE

China

India

EAS

SEA

Japan

USA

ONA

ROW

Average

0

5

10

15

20

0 10 20 30 40 50 60 70

GS

DR

V

SDRV


Origins of redirected foreign value added for electronics end-use,2007


27

0

5

10

15

20

25

30

35

40

eu15 eu12 owe oee chh ind eas sea jpn usa ona row

GS

FR

V

Redirector

eu15 eu12 owe oee chh ind eas sea jpn usa ona rowValue added from:


Final destinations of redirected value added for electronics, 2007


0

5

10

15

20

25

30

35

40


GS

FR

V

Redirector

eu15 eu12 owe oee chh ind eas sea jpn usa ona rowValue added to:


Type I redirection of value added for 0BS, 2007


29

EU15

EU12

OWE

OEE

ChinaIndia

EAS

SEA

Japan

USA

ONA

ROWAverage

0

5

10

15

20

25

0 5 10 15 20 25 30 35 40

GS

FR

V

SFRV


Type I + type II redirection of value added for OBS, 2007


30

EU15

EU12

OWE

OEE

China

India

EAS

SEA

Japan

USA

ONA

ROW

Average

0

5

10

15

20

25

0 10 20 30 40 50 60 70 80

GS

FR

V

SFRV


China as a redirector, 2001-2007


31

2001

2004

ltm

mlm

crp

mvh

otn

ome, 2007

ele

0

5

10

15

20

25

30

35

40

0 10 20 30 40 50 60 70 80 90

% of globally redirected value

added

% of intermediate value added imports


EU12 as a redirector, 2001-2007


32

ltm

mlm

crp

mvh

otn

ome

ele, 2007

0

2

4

6

8

10

12

14

16

0 10 20 30 40 50 60 70 80


added



ONA as a redirector, 2001-2007


33

2001

2004

ltm mlmcrp

mvh

otn ome, 2007

ele

0

5

10

15

20

25

30

35

40

0 10 20 30 40 50 60 70 80 90


added



Factory gate exports: upstream or downstream?


34

0

10

20

30

40

50

60

70

80

90

100

eu15 eu12 owe oee chh ind eas sea jpn usa ona row wld

%

Type II plus direct exports for final use at home Type I


Value added composition of gross exports


35

0

5

10

15

20

25


%



Some conclusions on the analysis

• Our analysis yields meaningful results on vertical specialisation at the industry level that are robust over time and seem to make sense

• We contribute to the literature with

- the concept of trade redirection by the last but one country in the chain

- the concept of factory gate exports, which seems useful in

› determining the interrelations in global supply chains (hubs and spokes)

› characterizing exports as relatively up- or downstream

› measuring the value added content of trade

• Type II redirection is still cumbersome to compute

• Our approach is just to measure what is happening in a meaningful way in the hope that this will be useful in testing the predictions of models that aim to explain what is happening in a meaningful way


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