input-output approaches to analyzing trade in global value

Input-output approaches to analyzing trade linkages of Latin America: Links to public policy

John Arvin Bernabe

Consultant

Statistics and Data Innovation Unit

Asian Development Bank

Objectives and outline

• International linkages: Preview the current analytical work on multiregional input-output tables to quantify international production sharing

[1] Show preliminary results replicated for Asia & the Pacific’s trading patterns in global production networks

[2] Decompose Brazil’s value-added trading patterns with East Asia & the Pacific to gain insights on the evolving trading relations

• Internal linkages: Show results from the input-output analysis of seven (7) Latin American economies using 2010 and 2015 tables.

[3] Identify key trends and patterns from the multiplier analysis using different policy variables

[4] Quantify important linkages of sectors to map out the roles they play in each economy

[5] Analyze structural changes in LAC economies between 2010 and 2015 to understand underlying factors driving economic growth

2

Part I. Introduction to the GVC analytical databaseTrade is increasingly flowing through global value chains, creating measurement challengesdue to globalization and technological advances. Accounting for global value chainstherefore becomes important for capturing the gains and managing risks.

3

What’s out there at the moment?

4

Database Number of countries Number of products and industries Years

AIIOT (IDE-JETRO) 10 (8 for 1975 table) 75 products (56 for 1975 table, 77 for

1985 table)

1975, 195, 1990, 1995, 2000, 2005

EORA MRIO 187 countries Varying across countries; simplified

version with 26 industries

1990-2013

EXIOBASE Versions 2 and 3 are more

enhanced

43 countries; 5 world regions 220 products; 163 industries 2000, 2007

FIGARO 28 EU countries; USA; Rest of the World 64 industries; 64 products 2010; 2010-2017 in progress

Global MRIO LAB 220 countries Flexible choice: 6357 products, industry

root classification

1990-2015 (preliminary data)

GTAP-MRIO 140 GTAP regions 57 GTAP commodities 2004, 2007, 2011

OECD-ICIO 64 (including Rest of the World) 34 industries; 34 products 1995-2011 (ISIC 3; nowcasted 2012-

2014); 2005-2011 (ISIC 4)

WIOD (2013 and 2016 release versions) 43 (including Rest of the World) 64 products; 56 industries 2000-2014

ADB MRIO 63 (including Rest of the World) Varying SUT dimensions; harmonized

to 35 industries

2000; 2007-2017 (2018 update on-

going)

International / Intercountry Input-Output Tables

Source: UN Handbook on Supply Use Tables and Input-Output Tables

What do we know so far?

5

Size Speed Orientation Shape Length

Breadth Depth Position

Data helps us contextualize global value chains.

Size: How important are GVCs?

6



C

Pure Domestic Production Traditional Trade Complex GVC

r

C

Simple GVC

r r

C

s

r

C

Traditional production / trade GVC trade

Production & Consumption: 1 place Production: 1 place

Consumption: >1 place

Border crossing: 1

Production: >1 place


Border crossing: 1

Production: >1 place


Border crossing: >1

Decomposition of GDP by industry into four (4) types based on nature of cross-border production-sharing activities (Wang, Wei & Zhu 2017)

Gross Domestic Product

Size: How important are GVCs?

Size: How much GVC activity is happening?

8

2000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Traditional trade Simple GVCs Complex GVCs

72%

74%

76%

78%

80%

82%

84%

86%

2000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

East Asia & Pacific domestic production as % of total Trade components in global production (US$ mln)

Trade in intermediate goods has slowed down in recent years.

Global value chains are being reshaped as domestic consumption in emerging market economies increase, domestic supply chains take inroads, and trade

in services become more predominant in global trade.

Size: How much GVC activity is happening?

9

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Share of goods & services in simple GVCs

Goods Services

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Share of goods and services in complex GVCs

Goods Services

-0.2

-0.1

0

0.1

0.2

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

% Changes in structural shares of goods and services in total GVC production

Goods Services

As services component in complex GVCs grow more significant, trade openness policies lean more towards the intangibles and skills development.

Services restrictiveness index by sector versus average GVC participation index, 2017

Ave. G

VC

part

icip

ation b

y

countr

y-s

ecto

r

Services restrictiveness index by sector

Speed: Are GVCs slowing down?

10



Speed: The many “phases” of complex GVCs

11

-30%

-20%

-10%

0%

10%

20%

30%

40%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Domestic Traditional trade Simple GVCs Complex GVCs

Growth rates (%) of production components in East Asia and the Pacific

Weak phases of GVC growth seen in recent years. Whether this is cyclical or structural is still open to debate.

Speed: The many “phases” of complex GVCs

12

East Asia and the Pacific’s domestic value added contribution to exports is correlated with trading partner’s growth trajectory. Higher correlation with FVA

indicate a more downstream position for East Asia and the Pacific economies.

R2 = .39 R2 = .43

As against exports of domestic value added (DVA) As against foreign value added content in exports (FVA)

Tra

de

pa

rtn

ers

’ gro

wth

pe

rfo

rma

nce

Orientation: Shifting roles in GVCs?

13




14

Supply-use relations embedded in IOTs are mostly known for exposing an industry’s orientation in production chains.

Backward participation (GVCPt_B)

Fo

rwa

rd p

art

icip

atio

n (G

VC

Pt_

F)


15

Graphs show % of value added attributed to simple and complex GVCs by sector in East Asia & Pacific

Textiles

Electronics

Transport eqpt.

Business services

Shape: Relational dimension of GVCs

16




17

The global value chain zoo: spiders, snakes, and hybrid “snikers”: Diakantoni and others 2017, based on

Baldwin and Venables 2010 explain how trade costs could accumulation at each succession in the supply chain.


18

2000 2004 2007 2011 2014

US

’ exp

ort

s t

o P

RC

PR

C’s

exp

ort

s t

o U

S

Value added in exports of

respective economies (VAX_G)

US: 74% (2014)

PRC: 46% (2014)

“Third country” effects(value-added contribution of other

countries or FVA)

Trade in computer, electronics, and optical equipment

Bilateral perspective: US-PRC’s trade balance in the context of GVC


19

Geography of supply chains. While the image of a chain implicitly projects a succession of sequential steps, most supply chains

are not linear but are defined by a hub and spoke pattern.

Length: Are GVCs getting longer?

20



-

1.00

2.00

3.00

4.00

5.00

6.00

- 1.00 2.00 3.00 4.00 5.00 6.00

• APLs: Indication of economic “distance” between two economies

• Longer chains compound transmission shocks, which could partly explain why complex GVCs are more affected than traditional

trade activities during periods of slowdown. In addition, length could also relate to a country’s exposure to a demand shock.

• Why are GVCs getting longer in “crisis” periods?

Length: Are GVCs getting longer?

21

2000

2017 Lengthening

(takes more

“steps” to get to

the final stage)

Shortening (takes

less “steps” to get

to the final stage) 2.9

2.92

2.94

2.96

2.98

3

3.02

3.04

3.06

3.08

2000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Comparison of bilateral APL indices (2000 vs 2017) Global APL from 2000 to 2017

Breadth: Are GVCs reaching far enough?

22




23

2000 2017

Country perspective: Indonesia’s expanding role in value added trade (2000 versus 2017)

Shares of intra-and inter-regional GVC activities in manufacturing (%)

Factory Asia Factory Europe Factory NAFTA

Breadth: Are GVCs reaching far enough?Rise of Factory Asia. Data shows the higher the degree of economic integration in regional production networks, the higher the

intra-regional GVC activities.

Source: GVC Development Report 2019


25

Flow of Domestic Value-Added (F) Generated in Asia’s Exports Production that is Sent to Asia, All Sectors, 2000 vs. 2018

2000 2018

Rise of Factory Asia. Data shows the higher the degree of economic integration in regional production networks, the higher the

intra-regional GVC activities.

Depth: Intensity of global value chain trade

26




27

Ba

ck

wa

rd G

VC

pa

rtic

ipa

tio

nF

orw

ard

GV

C p

art

icip

ati

on

It is no surprise that GVC integration is becoming deeper for many developing economies and has matured in some.

(Note: 1 represents the average participation for East Asia and the Pacific.)


Country-level comparison of VS as % share of gross exportsIndicates how dependent one country's exports are to value added inputs coming from different countries


FV

A_

INT

AS

% S

HA

RE

OF

VS

(N

OR

MA

LIZ

ED

TO

AV

E.)

PDC AS % SHARE OF VS (NORMALIZED TO AVE.)

Deepening and lengthening of value

chains from vertical specialization

perspective, Asia, 2007-2017

Asia’s regional value chains are evolving.

Cross-country comparisons reveal varied

patterns.

PRC has grown in length and has become

more involved in intermediate goods trade

While other resource-intensive economies,

including small open economies have

historically relied on foreign value added

inputs.


20172007

2000 2007

PRE-CRISIS POST-CRISIS

HKG

SIN

MON

KAZ

TAP

THA

SRI

MALVIE

FIJ

JPN CAM

KOR

NPL

KGZ

PHI

PRCBTN

LAO

IDN

BAN

IND

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0% 10% 20% 30% 40% 50%

HKG

SIN

MON

KAZ

TAP

THA

SRI

MDVMAL

VIE

FIJ

JPN

CAM

KOR

NPL

KGZ

PHI

PRC

BTN

LAO

IDN

BAN

IND

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

0% 10% 20% 30% 40% 50%

Vertical specialization performance of Asian economies: Case of Manufacturing


20172007

2000 2007

PRE-CRISIS POST-CRISIS

HKG

SINMONKAZ

TAP

THA

SRI

MDV

MAL

VIE FIJ

JPN

CAM

KOR

NPL

KGZ

PHIPRC

BTN

LAO

IDN

BAN

IND

PAK

BRN

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0 0.1 0.2 0.3 0.4 0.5

HKG

SIN

MON

KAZ

TAP

THA

SRI

MDV

MAL

VIE

FIJ

JPN

CAM

KOR

NPL

KGZ

PHI

PRC

BTN

LAO

IDN

BAN

IND

PAK

BRN

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0 0.1 0.2 0.3 0.4 0.5

Vertical specialization performance of Asian economies: Case of Services

7%14%

44%

26%20%

66%

46%

57%

27%31%

41%

17%

32%24%

45%

20%

53%

25% 22% 25%

38%

12%

32%

15% 15%

56% 39%

28%

43%

45%

11%

23%

16%

36% 28%

26%

40%

26%

28%

20%

26%

7%

23% 27% 22%

15%

26%

14%

12% 13%

30%

39%

19%21%

22%

9%

13%9%

18%

18%10%

18% 16%19%

5%

20%

4%

16% 14% 15% 4%

18%9%

9% 6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BRN KAZ PAK LAO BTN BAN PRC SRI IDN JPN FIJ MON IND KGZ NPL MAL CAM PHI THA KOR MDV TAP VIE SIN HKG

DVA_FIN DVA_INT DVA_INTrex RDV


% share of DVA_B in gross exports of manufacturing sectors, 2017

Position: Locating value in production stages

33




Estimated smile curve for China’s exports of electrical

and optical equipment, 2009

For an inverted smile curve, consider value-added

activities in the German auto industry, 2009

Source: GVC Development Report 2017

0

1

2

3

4

5

6

7

0 1 2 3 4 5 6 7

Upstreamness Index (2007 vs. 2017)

World DevAsia-World Intra-Asia


35

Domestic Cross-border trade

Year: 2007

Ye

ar:

20

17

Average upstreamness indices are generally declining for Asia as it shifts to downstream segments of the value chain;

Position is relative; a lot of heterogeneity is observed at the bilateral-sector levels


36

Thailand’s Textile sector is relatively more

downstream compared to average countries in

those same sectors.

Thailand’s transport equipment sector is relatively

more upstream compared to the average country

involved in that sector.

Salient observations from the analytical database

37



Significant Slower pace Backward* Hub & spokes Shortening*

Expanding Interrupted* Downstream*

* General trend only. Patterns vary as data gets more granular.

Salient observations from the analytical database

1. GVCs are a growing component of production

2. But could be slowing down as economic activities turn inward

3. GVCs are more regional than global. The presence of Factory Asia has grown with a backward-linkage orientation in the era of mass production.

4. GVCs became more networks than chains. Economies tapped into the trade potential by integrating themselves into GVC hubs

5. But signs point to shortening value chains as demand were “reshored”

6. Deepening value chains were interrupted as risks moved “offshore”

38

Presence of Factory Asia, Factory North

America, & Factory Europe

GVCs are less linear than “chains”; they often

pertain to network of buyers, and suppliers

managed by a lead firm (see Gereffi)

Trade in tasks versus trade in goods; Trade in

sources of comparative advantage

The “shape” of value chains differ from product

to product (e.g. iPhones vs German

automobiles)

Services contribute significant value added to

manufactured goodsImports can be a source of competitiveness for

exports; It is easier to join GVCs than build an

entire chain on your own

D. Ricardo’s unit of analysis (countries)

changed as GVCs denationalized comparative

advantage

Countries with high labor productivity will have

higher wages and still be low-cost producers

Spillovers/ feed through effects are amplified;

these effects could either be beneficial or

harmful.

Some more observations from the analytical database

More “networks” than

“chains”More “regional” than “global”

What you do matters more

than what you sell

Some “smiles” can “frown” Intangibles within tangibles “Import to Export”

Firms, not countriesLow unit labor costs vs.

low labor costs

Risks too, not just

opportunities

Linking the database to public policy

40

Relational

Systemic

Structural

Size

Speed

Orientation

Length

Position

Shape

Breadth

Depth

Systemic

Relational

Structural

• Magnitude and momentum of trade channel

• Strength of the trade-growth nexus

• Trade promotion and facilitation strategies

• Direction (or mode) of linkage

• Downstream value chain : demand-side policies

(upgrading, competitiveness, diversification)

• Upstream : supply-side policies (logistics, trade

facilitation, infrastructure, ease of doing business)

• Channels of transmission (risk or growth)

• Design of preferential trade agreements

• Bilateral balance of trade

3-dimensional characterization

of global value chains


41

GVC matters for growth.

VS growth (X) positively correlated with

value creation growth (Y) in Developing

Asia (2007-2017)

“At-the-border” policies count

Logistics performance (X) positively

correlated with vertical specialization (Y),

2007-2016

As well as across- and behind-the-

border policies

Ease of doing business (trading across

borders and enforcing contracts) links with

GVC intensity


42

Especially when it comes to upgrading in global value chains

Asia’s revealed comparative advantage (RCA) based on domestic value added exports (black circles) and gross exports (white ci rcles), 2017

Heavy manufacturing sectors Services sectors


43

GVC integration expose the need for sustained regional cooperation

Source: Hoffman, Osnago, and Ruta 2017.

Trade & Investment (W)

Money & Finance (W)

Regional Value Chain (W)

Infrastructure &Connectivity (W)

Movement of People (W)

Institutional & SocialIntegration (W)

Africa Asia EU Latin America and Caribbean

Source: ADB ERIA Asia Pacific Regional Integration Index 2016

Deep preferential agreements and GVC trade mutually reinforce each other. Regional cooperation indices reveal areas where Asia and Latin America and

Caribbean could learn from each other.

https://aric.adb.org/pdf/aeir/AEIR2017_7_asia-pacific-regional-cooperation-and-integration-index.pdf

Takeaways

• Input-output approaches to building analytical database

• Knowledge of GVCs are still growing

• How we measure GVCs are still evolving

• Converging versus diverging approaches (multiple angles)

• Strengthening statistical systems for policy use

• Data collaboration and integrated ecosystems

44

https://kidb.adb.org

input-output approaches to analyzing trade in global value

Documents