Transcript 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,

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
• 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
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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)
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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
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Value-added framework:
Gross output in a two-country world
• All output is used as an intermediate or final good at home or abroad
Xr  Arr Xr  Ars Xs  Yrr  Yrs
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
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Production system in a two-country world
• In block matrix notation
 X1   A11 A12   X1   Y11  Y12 

X   A




 2   21 A 22  X 2  Y21  Y22 
• Rearranging,
 X1  I  A11
X     A
 2 
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1
 A12   Y11  Y12   B11




I  A 22  Y21  Y22  B21
B12   Y1 
B22  Y2 
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
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Value added in production
• Direct domestic value added in production:
V1  u[I  A11  A21]
and
V2  u[I  A12  A22 ]
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 shares matrix (2×2N) decomposes value added in
production of each sector in all countries
 V1B11 V1B12 
VAS  VB  

V
B
V
B
 2 21
2 22 
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Value-added exports
• Exports (2N×2) include both intermediate and final goods
E1 0 
E

0
E

2
(See paper for value-added
exports at the product level)
• Value-added exports matrix (2×2)
 V1B11E1 V1B12E 2 
VAS_E  VBE  

V
B
E
V
B
E
 2 21 1
2 22 2 
• Fully generalizable to a many-country world
X  (I  A ) 1 Y  BY
VAS  VB
VAS _ E  VBE
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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*)
Domestic value
added in exports
(VAX ratio)—
includes VS1*
V1 B11 E1 V1 B12 E2 V1 B13 E3 
VAS_E  VBE  V2 B21 E1 V2 B22 E2 V2 B23 E3 
V3 B31 E1 V3 B32 E2 V3 B33 E3 
Direct (VS): Foreign value added from 2
and 3 embodied in country 1’s exports
Indirect (VS1):
Country 1’s
value added
embodied in
2’s and 3’s
exports
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Completely decomposes gross exports
Gross exports
Domestic value
added in
exports (VAX)
Exports
consumed by
direct importer
Final
goods
Further downstream
Intermediate
inputs
Domestic value
added that returns
from abroad (VS1*)
Indirect exports
sent to third
countries
Final
goods
Intermediate
inputs
Foreign value
added in exports
(VS)
Final
goods
Intermediate
inputs
Indirect valueadded exports
(VS1)
Further upstream in GVCs
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Decomposition of gross exports
Australia, New Zealand
Japan
EU 15
United States
EFTA
Canada
Advanced economies
India
South Asia
Rest of East Asia
Indonesia
China
Vietnam
Thailand
Malaysia
Philippines
Emerging Asia
Hong Kong
Korea
Taiwan
Asia NICs
Russian Federation
Brazil
Rest Latin America
Rest of the world
South Africa
EU accession countries
Mexico
Other emerging
World average
0
20
40
60
Share of Gross Exports
Domestic VA
Foreign VA
80
100
Domestic VA returned
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Supply chain participation:
Key differences by region
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 of Americas
Rest of the world
South Africa
EU accession countries
Mexico
Japan sends much of its domestic
value to final suppliers indirectly
through third countries (see table 3)
US uses lots of imported inputs in
its exports; imported value supplied
by Canada, Mexico, and US itself
Advanced economies
Emerging Asia
E. Asia has the longest chains–little
of its exported value is absorbed by
direct importer (see table 3)
Asia NICs
East Asia has the most foreign
content in its own exports
Other emerging
Integration in NAFTA makes
Mexico an outlier among non-Asian
economies
World average
0
20
40
60
80
Share of Gross Exports
Domestic VA
Foreign VA
Domestic VA returned
100
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Trade costs of multistage production
Trade costs (tariff + transport), as a share of export value
Canada
EFTA
• East Asia pays a
price for its long
chains and
relatively high
tariffs
• Advanced
economies have
low foreign
content and,
hence, low costs
EU
Japan
Trade costs
on exports
United States
Hong Kong
Korea
Trade costs
on imported
inputs
Taiwan
China normal
China processing
Malaysia
Thailand
Vietnam
India
Brazil
EU accession
Mexico normal
Mexico processing
Russian federation
0
5
10
15
20
25
30
35
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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
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BEC shows substantial export heterogeneity
Intermediate share of U.S. electronic machinery imports, by source
Proportion method
Japan
EU 15
EFTA
Canada
India
Rest of East Asia
Indonesia
China
Vietnam
Thailand
Philippines
Share from US import
use table (54.2%)
Hong Kong
Korea
Taiwan
Russian
Brazil
EU accession
Mexico
0
10
20
30
40
50
60
70
80
90
100
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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
15
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 valueadded terms consistent with official statistics
– Ideal database would be consistent with both official
trade statistics and national income accounts
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Questions/Comments?
• Contact information
–
–
–
–
–
Bill Powers
Research Division, Office of Economics
U.S. International Trade Commission
[email protected]
(202) 708-5405
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