rise of global value chains and trade in value added data sources used in measuring gvcs • firm...

Rise of Global Value Chains and Trade in Value Added

Bo MENG (IDE-JETRO)

Regional Seminar on International Trade Statistics (UNSD & NBS)24-26 Oct. 2011 Beijing.

（C） IDE-JETRO All rights reserved. 1

Contents1. Change of trade pattern: increasing

international trade in intermediate goods2. Rise of Global Value Chains (GVCs)3. How to measure GVCs4. Trade in value added and bilateral trade

balance


Change of trade pattern


◎ Pre-industrial Revolution:→ The village market placeLow production technology, high transport cost, lack of information

◎ Industrial Revolution:→ Mass-production, mass-consumptionSpecialization in production, decrease of transportation cost

◎ Post-industrial Revolution:→ Outsourcing, Fragmentation, Vertical Specialization, Global

Supply Chains, Trade in tasksReduction of communication cost, trade barriers, flow of FDI

Simple concept of GVCsPlanning of product

R&D/Design/Testing productionProcurement of parts & components

AssemblyFinal products

Marketing/sale/exportCustomer service/user support


Simple concept of GVCsPlanning of product

R&D/Design/Testing productionProcurement of parts & components

AssemblyFinal products

Marketing/sale/exportCustomer service/user support


Fragmentation production


Made in USA ↓

Made in the World

7

Linkage: Export share more than 10% (2000)

US:30

DE:30

JP:12

CN:3

8

Linkage: Export share more than 10% (2007)

US:21

DE:27

JP:8

CN:11

Contribution of trade in intermediate goods

Contribution rateBefore 2002 vs after 2002

Intermediate goods:

38％→54%Household consumption:

34％→19%Capital goods:

16%→20%


0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Unit: Billion US $

Total trade in goods

Intermediate goods

Household consumption

Capital investment

Source: calculated by Bo MENG and Norihiko YAMANO, 2011 (using OECD data, preliminary)

How to measure GVCsWhy we need measurement of GVCs：

◎Increasing complexity of GVCs→ “What you see is No More what you get.”◎Policy needs→ “You can’t manage what you can’t measure.”


Main data sources used in measuring GVCs• Firm based data（Apple, Toyota）Micro level, but lack of global viewpoint• Bilateral trade data（import and export）Global, but no inter-industry information• National input-output dataInter-industry, but lack of global aspect• International input-output dataInter-country, inter-industry, but time lag (almost 5 years)


Vertical specialisationVertical specialisation

VS share = induced intermediate imports / total exports(=Hummels, et al. (2001) ‘s “Import contents of export”)

Country 1

Country 2

Country 3

Domestic intermediate

goods

Domestic sales

Capitalservices

Intermediate and final goods

Exports of intermediate

goods

Exports of final goods

Domestic capital and labour

Intermediate goods

The change rate of VS share between 1995 and 2005The change rate of VS share between 1995 and 2005

Source: Meng et al. (2011)

Structural decomposition analysis on vertical specialization indicator

I-O based decomposition technique =>

∆VS share = f (∆m, ∆B, ∆e)

m: import dependency, B: domestic inter-industrial production system, e: export structure.

The decomposition result of the change in VS shareThe decomposition result of the change in VS share

Source: Meng et al. (2011)

Decomposition of fragmentation processDecomposition of fragmentation process

Applying international I-O based decomposition technique to the fragmentation measure:

Total Fragmentation degree = VS + IDFVS: Conventional Vertical Specialisation indicator IDF: Indirect Fragmentation Indicator (IDF)

Asian fragmentation index based on international IO data Asian fragmentation index based on international IO data (1995/2005)(1995/2005)

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

95 05 95 05 95 05 95 05 95 05 95 05 95 05 95 05 95 05 95 05 95 05 95 05

Singapore Malaysia Philippines Thailand Chinese Taipei

Korea China Indonesia New Zealand Australia Japan India

IDF VS

(1.0 = Goods and Services exported as final expenditure)

Source: Meng and Yamano (2011)

USA CHN

iPhone: $179.00

Assembly: $6.50

Components: $10.75

Source: Based on The iPhone example (Xing and Detert, 2010)

JPN

KOR

GER

ROW

$60.6

$22.96

$30.15

$48.04

Apple sold 11.3 million iPhones in the USin 2009

Retail price: $500.00(Profit margin: 64%)

Trade in value added and its measurementTrade in value added and its measurement


Source: WTO-IDE-JETRO (2011)

How to measure Trade in Value Added• Single national IO based measureu∙EX = V∙B∙EX + u∙M∙B∙EX

(Total export) (domestic VA of export) (import contents of export)

• International IO based measureCountry R’s export of value added to country S:VARS=VR∙LRR∙FDRS+VR∙LRS∙FDSS

=>Trade balance:ΣSVARS-ΣSVASR = ΣSEXRS-ΣSEXSR



Summary・Change of trade pattern：Trade in goods→Trade in Tasks

・Rise of GVCs：“Made in the world”

・Measure of GVCs and related policy issue：“Who produces for whom?”


Reference 1


Reference 2• Hummels, D., J. Ishii and K. Yi (2001), “The Nature and Growth of Vertical Specialization in World

Trade”, Journal of International Economics, 54:1, 75–96.• Kimura, F. and M. Ando (2005), “Two-dimensional Fragmentation in East Asia: Conceptual Framework

and Empirics”, International Review of Economics and Finance, Vol. 14, pp.317-348. • Meng, B. and S. Inomata (2009), “Impact of the Global Economic Crisis on Employment in the Asia-

Pacific Region”, in Inomata, S. ed., Asia Beyond the Crisis: The transmission mechanism of financial shocks, Edward Elgar.

• Yamano, N., Meng, B. and Fukasaku, K. (2011), " Fragmentation and Changes in the Asian Trade " Network, ERIA Policy Brief.

• Bo MENG, Norihiko YAMANO and Colin WEBB (2011), "Application of Factor Decomposition Techniques to Vertical Specialisation Measurements", Vol. 16, Journal of Applied Input-Output Analysis (forthcoming).

• WTO-IDE-JETRO (2011), Trade patterns and global value chains in East Asia: From trade in goods to trade in tasks, World Trade Organization.

世銀： http://go.worldbank.org/R156ABXQQ0WTO: http://www.wto.org/english/res_e/statis_e/miwi_e/miwi_e.htm




付加価値

生産工程

製品企画

組立

製品完成

販売

マーケティン

グアフターサービス

原材料部品調達

製品開発

デザイン・試作


付加価値

生産工程

製品企画

組立

製品完成

販売

マーケティン

グアフターサービス

原材料部品調達

製品開発

デザイン・試作

Wassily Leontief(1906-1999).

Russian economist. Nobel Prize in

Economics, 1973.


Source: http://www.iioa.org/leontief/Photos/photo-harvard.html

Application to the measure of GVCs：V∙(I+A1+A2+A3+…+An)∙F=V ∙(I-A)-1 ∙ F, n->∞


Indo

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aysi

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Phili

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Sing

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Thai

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Chi

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Kor

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Japa

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U.S

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Indo

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Mal

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Sing

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Thai

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Chi

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Taiw

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U.S

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Expo

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H.K

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Expo

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EU

Expo

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R.O

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Dis

crep

ancy

Tota

l Out

puts

code (AI) (AM)(AP) (AS) (AT)(AC)(AN)(AK) (AJ) (AU) (FI) (FM) (FP) (FS) (FT) (FC) (FN) (FK) (FJ) (FU) (LH) (LO)(LW)(QX) (XX)Indonesia (AI) AII A IM AIP A IS A IT AIC A IN AIK A IJ A IU F II F IM F IP F IS F IT F IC F IN F IK F IJ F IU L IH L IO L IW QI X I

Malaysia (AM) AMI AMMAMP AMS AMT AMC AMN AMK AMJ AMU FMI FMM FMP FMS FMT FMC FMN FMK FMJ FMU LMH LMO LMW QM XM

Philippines (AP) API APM APP APS APT APC APN APK APJ APU FPI FPM FPP FPS FPT FPC FPN FPK FPJ FPU LPH LPO LPW QP XP

Singapore (AS) ASI ASM ASP ASS AST ASC ASN ASK ASJ ASU F SI F SM FSP F SS F ST FSC F SN F SK F SJ F SU L SH L SO LSW QS XS

Thailand (AT) ATI ATM ATP ATS ATT ATC ATN ATK ATJ ATU FTI F TM FTP FTS F TT F TC FTN FTK FTJ F TU LTH LTO LTW QT XT

China (AC) ACI ACM ACP ACS ACT ACC ACN ACK ACJ ACU FCI FCM FCP FCS FCT FCC FCN FCK FCJ FCU LCH LCO LCW QC XC

Taiwan (AN) ANI ANM ANP ANS ANT ANC ANN ANK ANJ ANU FNI FNM FNP FNS FNT FNC FNN FNK FNJ FNU LNH LNO LNW QN XN

Korea (AK) AKI AKM AKP AKS AKT AKC AKN AKK AKJ AKU FKI FKM FKP FKS FKT FKC FKN FKK FKJ FKU LKH LKO LKW QK XK

Japan (AJ) AJI A JM AJP A JS A JT AJC A JN AJK A JJ A JU F JI F JM F JP F JS F JT F JC F JN F JK F JJ F JU L JH L JO L JW QJ X J

U.S.A. (AU) AUI AUM AUP AUS AUT AUC AUN AUK AUJ AUU FUI FUM FUP FUS FUT FUC FUN FUK FUJ FUU LUH LUO LUW QU XU

Freight and Insurance (BF) BAI BAMBAP BAS BAT BAC BANBAK BAJ BAU BF I BFM BFP BFS BFT BFC BFN BFK BFJ BFU

Import from H. Kong (CH) AHI AHM AHP AHS AHT AHC AHN AHK AHJ AHU FHI FHM FHP FHS FHT FHC FHN FHK FHJ FHU

Import from EU (CO) AOI AOM AOP AOS AOT AOC AON AOK AOJ AOU FOI FOM FOP FOS FOT FOC FON FOK FOJ FOU

Import from the R.O.W. (CW) AWI AWMAWP AWS AWT AWC AWNAWK AWJ AWU FWI FWM FWP FWS FWT FWC FWN FWK FWJ FWU

(DT) DAIDAMDAPDASDATDACDANDAKDAJDAU DF I DFMDFP DFS DFT DFC DFN DFK DF J DFU

Value Added (VV) VI VM VP VS VT VC VN VK VJ VU

Total Inputs (XX) XI XM XP XS XT XC XN XK XJ XU

Duties & Import Taxes

Intermediate Demand (A) Final Demand (F)

Figure 5: Layout of Asian I-O 2000Export (L)

Appendix1Appendix1IO based Factor decomposition techniqueIO based Factor decomposition technique

VS share = u∙m∙L∙EX/u∙EX = u∙m∙L∙e,∆VS share=VS share1 - VS share0=u(m1∙L1∙e1 - m0∙L0∙e0) = u∙∆m∙ (2L0∙e0 +2L1∙e1+ L0∙e1+ L1∙e0)/6 + u∙ (2m0∙∆L∙e0 + 2m1∙∆L∙e1 + m0∙∆L∙e1 + m1∙∆L∙e0)/6+ u∙ (2m0∙L0 + 2m1∙L1 + m0∙L1 + m1∙L0) ∙∆e /6.∆m: the change in import dependency, ∆L: the change in domestic backward linkage, ∆e: the change in export structure.

Appendix 2Appendix 2Decomposition of fragmentation processDecomposition of fragmentation process

· · I A 1 · EXfd1

0 0 0A21 0 0A31 0 0

· B ·EXfd100

u0 A12 A130 0 A230 A32 0

· B ·EXfd100

uA11 0 00 A22 00 0 A33

· B ·EXfd100

Φ1 Φ2 Φ3

Total intermediate trade (3-country international I-O model):A X=A (I-A)-1 F= A B FTrade induced by country 1’s exports of final goods(EX1

fd):

Ф1: VS based on single I-O table Ф2: Indirect Fragmentation (IDF) indexФ1 + Ф2: Total Fragmentation(TF) indexФ3: induced intra-country transaction

32

Trade Structure and its Change in Asian Region(Based on the trade in Intermediate Goods)

To

From1990 2008

33

Inter‐country backward linkages in Asian Region(Based on International Leontief Inverse)

1990 2008

rise of global value chains and trade in value added data sources used in measuring gvcs • firm...

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