the changing nature of the uk's involvement in global value chains - by dr michael gasiorek,...

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The Changing Nature of the UK’s Involvement in Global Value Chains prepared for the Business Statistics User Event: The Changing Nature of Trade and Investment in the UK 24 th September 2013 Dr. Michael Gasiorek CARIS, University of Sussex & InterAnalysis [email protected] www.tradesift.com

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The Changing Nature of the UKs Involvement in Global Value Chains prepared for the Business Statistics User Event: The Changing Nature of Trade and Investment in the UK 24th September 2013

The Changing Nature of the UKs Involvement in Global Value Chainsprepared for the Business Statistics User Event:The Changing Nature of Trade and Investment in the UK24th September 2013Dr. Michael GasiorekCARIS, University of Sussex& [email protected] www.tradesift.com12What are the issues....The last 10-15 years have seen the increasing integration of firms in value chains or supply chains.Firms increasingly purchase and sell goods and services as intermediate inputs internationally. This process has become known as the fragmentation of the supply chain. Conventional wisdom suggests this has enabled a finer degree of within industry specialisation, leading to increased productivity & competitiveness.Also resulted in greater inter-dependance between countries

CARIS23What are the issues....Looking at gross exports may be misleading. Need to be able to identify the value added in those exports. To do so, need to identify the intermediates that are used by each industry and where the intermediates come from: domestic v imported input-output tables.Two recent data-sets (TiVA & WIOD) have been released which provide this information and allow these issues to be explored:Important for policy and for understanding the changes that have taken place in the UK economy

CARIS34TiVA and WIOD - overviewTiVA (trade in value added)Produced by the OECDIndicators for 18 sectors manufacturing and services57 economies (OECD + others) 1995, 2000, 2005, 2008, 2009WIOD (world Input Output Database)Produced by Provides detailed (input-output) tables for 36 sectors covers 27 EU countries + 13 other countries period 1995-2009. Includes information on the employment by skill type (high medium & low) embodied in trade and production

CARIS45Every picture tells a story. CARIS

56Domestic value added in gross exportsChart shows that for the UK, the share of domestic VA in exports has gone up (from 79% to 83%)Interestingly for the others we see the reverse trendChina: 88% 67%India:90% 78%Germany:81% 73%This would appear to suggest that the UK may be engaging less in international value chains, while competitors are engaging more.Important to understand this and to consider the extent to which this matters.

CARIS67Possible explanationsWithin industries the UK is producing more of the value chain (MVC) - supplying more intermediatesWithin industries UK is now producing a higher value part of the value chain eg. moving up the value chain (UVC)No compositional changes but within industries the price of UK intermediates relative to the price of the final goods it exports has gone up Changes in the structure of the UK economy Decline of sectors with a low domestic value chain share growth of sectors with a high domestic value chain share

CARIS78Possible explanations(1) and (2) suggest that the UK is becoming more competitive in the intermediates it supplies for use in the final goods that the UK then exports(3) suggests that the UK is becoming less competitive in the intermediates it suppliesAssessing competitiveness in the intermediates is tricky and cannot be done with TiVA data directlyTiVA gives revealed comparative advantage for 9 manufacturing sectorsThis does not identify the intermediates used in those sectors, however if the UK was more competitive in the intermediates might also expect this to be the case for the final goods too.

CARIS89Ag, for fishFood, Bev, & TobWood, Paper, prntngChemBasic metalsMachry.Elect & Opt.TranspEquipManuf nes

910Possible explanationsEach of (1), (2) and (3) Producing more of the value chain (MVC)Producing higher up the value chain (UVC)Increasing price of UK intermediates ...imply changes taking place within industries, so we would expect to see a higher share of domestic value added within industries

CARIS1011

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Wood, Paper, prntngChemTranspEquipAg, for fish13

For Chemicals and Transport Equip: RCA , domestic VAsh For these competitiveness may be related to more international fragmentation as opposed to less

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Ag,For. & Fishg, and Wood, Paper & Printing: RCA, dom Vash Therefore may be consistent with explanations 1,2 or 3

15OverallThere are 10 industries where the UK value added share has gone up, five are service industries accounting for 21% of the UKs exports.five of these in manufacturing comprising 28% of the UKs exports in 2009; No clear pattern between competitiveness and domestic value added share but this is at a very aggregate level

CARIS1516What do the graphs suggest?There are four sectors where the UKs revealed comparative advantage has gone up: food, beverages and tobacco; wood, paper, printing and publishing;Chemicals and non-metallic mineral productsTransport equipmentIn only two of the sectors which saw a rise in the UKs domestic share of value added, is there evidence of the RCA rising.Note also little difference at this aggregate level between the RCA using gross exports and value added exports. This is unsurprising.

CARIS1617What about inter-sectoral compositional shifts? CARIS

(Note: Excluding industries with a 2009 share less than 2.5%)

1718What about inter-sectoral compositional shifts? CARIS

(Note: Excluding industries with a 2009 share less than 2.5%)

1819What about inter-sectoral compositional shifts? CARIS

(Note: Excluding industries with a 2009 share less than 2.5%)

1920Some significant changes hereIndicative of substantial compositional shiftsDecline in the share of all manufacturing sectors.growth in the importance of financial intermediation (65-67) from 4.9% of value added exports to 18%Growth in real estate, renting and business activities (70-74) from 8.7% to 16.7%.

CARIS2021So what is the story?Post 1995 restructuring of the economy towards financial & business services. These sectors have a higher value added share in exports, so this is driving the aggregate resultsDecline in manufacturing in the UK, though not necessarily by UK firms. Production and exports shifted to 3rd countries. In contrast (possibly) Germany shifted source of intermediates to third countries. China and India changes driven more by the opening up of their economiesMay have been exacerbated by overvalued exchange rate. On the one hand this makes imported intermediates cheaper (encouraging their use; on the other hand makes exports more expensive. Net effect unclearHowever, hard to see in detail what is happening to trade CARIS2122For that you need more detailed trade data...Out of 4696 goods exported in 2011, the top 50 UK HS 6-digit exports account for just under 50%.Those 50 industries accounted for 36% of UK exports in 2001Of those 50 industries, nearly 25% saw their revealed comparative advantage over 2001-2011 decline. These industries accounted for 18% of UK exports in 2001, and 14.6% in 2011.Out of the 50 industries the 10 which saw their RCA rise the most, saw their share of exports over the period rise from just under 2% to 6.6%.

CARIS22Another picture, another story?

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