Towards Measuring Trade in

Value-Added and Other Indicators

of Global Value Chains:Current OECD work using I-O tables

Sébastien Miroudot

and Norihiko Yamano (OECD)

“The Fragmentation of Global Production and Trade in Value-Added – Developing new measures of cross-border trade” – World Bank, Washington DC, 9-10 June 2011

Outline of the presentation

1. Concepts: trade in tasks, fragmentation of production and global value chains

2. Measurement: from case studies to global input-output analysis

3. OECD approach

4. What indicators do we need?

5. Concluding remarks

Trade in tasks: deepening division of labour

Fragmentation of production: the Boeing 787 Dreamliner

Source: www.newairplane.com

Escape slides: Air Cruisers (USA)

Horizontal Stabiliser:

Alenia Aeronautica (Italy)

Centre fuselage: Alenia Aeronautica (Italy)

Final assembly: BoeingCommercial Airplanes (USA)

Vertical Stabiliser: Boeing

Commercial Airplanes (USA)

Landing gear: Messier-Dowti (France)

Electric brakes: Messier-Bugatti (France)

Tires: Bridgestone Tires (Japan)

Doors & windows:

Zodiac Aerospace (USA)

PPG Aerospace (USA)

Tools/Software: Dassault Systemes (France)

Navigation: Honeywell (USA)

Pilot control system: Rockwell Colins (USA)

Wiring: Safran (France)

Centre wing box:

Fuji Heavy Industries (Japan)

Engines: GE Engines (USA),

Rolls Royce (UK)

Wing box: Mitsubishi Heavy Industries (Japan)

Wing ice protection: GKN Aerospace (UK)

Engine nacelles: Goodrich (USA)Aux. power unit: Hamilton

Sundstrand (USA)

Flight deck seats:

Ipeco (UK)

Lavatories:

Jamco (Japan)

Cargo doors: Saab (Sweden)

Forward fuselage:

Kawasaki Heavy Industries (Japan)

Spirit Aerosystems (USA)

Raked wing tips: Korean Airlines

Aerospace division (Korea)

Flight deck controls:

Esterline (USA),

Moog (USA)

Passenger doors:

Latécoère Aéroservices (France)

Prepreg composites:

Toray (Japan)

Rear fuselage:

Boeing South Carolina (USA)

Global value chains: offshore services (Gereffi, 2010)

Measurement

• Three issues with traditional trade statistics:

1. Implicit multiple counting of intermediate goods and services

2. Tends to hide the actual patterns of trade

3. Incomplete picture as knowledge and income flows are not measured

• Pascal Lamy: “the statistical bias created by attributing commercial value to the last country of origin perverts the true economic dimension of bilateral trade imbalances. This affects the political debate, and leads to misguided perceptions”.

The case study approach

• iPhone 4: main component suppliers

• But who are the suppliers of the suppliers?

Country Components Manufacturers Costs

Chinese Taipei Touch screen, camera Largan Precision, Wintek 20.75$

GermanyBaseband, power

management, transceiverDialog, Infineon 16.08$

KoreaApplications processor,

display, DRAM memory LG, Samsung 80.05$

United States

Audio codec, connectivity,

GPS, memory, touchscreen

controller

Broadcom, Cirrus Logic,

Intel, Skyworks, Texas

Instruments, TriQuint

22.88$

Other Other Misc. 47.75$

Total 187.51$

Source: iSuppli, Chipworks

US trade balance CHN TWN DEU KOR ROW World

Gross -1,646 0 0 0 0 -1,646

Value added -65 -207 -161 -800 -413 -1,646

USA CHN

Final good1,875

Components229

TWN

DEU

KOR

ROW

207

161

800

413Assembly65

Upstream

input

suppliers?

The iPhone example revisited10 million units exported from China to the US

The analysis takes only into account the direct suppliers of the Chinese assembler

Global input-output analysis

• Conceptually, it is possible to decompose any particular product with value Vp into the value-added generated in country i such that the total value of

• This is relatively clear and simple. However complications can arise when aggregating up for a whole industry group or for a whole economy.

• The calculation requires a global input-output table.

i

p

i

p VAV

Decomposition of the value of exports (1)

• For any given export by an industry, it should be possible to decompose the entire value into:– the domestic value-added generated in its production,

both directly from the main producing industry, and indirectly via transactions between domestic industries and via transactions between domestic and foreign industries; and

– the imported value-added generated in producing the imports used in production (not including any part of the import value that reflects domestic value-added)

Decomposition of the value of exports (2)

• A global input-output table should allow users and policy makers to decompose the entire value of any good in the following way:

Direct domestic value-added from the final producer

• Single value/percentage

Indirect domestic value-added by producing industry

• Column of values/percentages

Indirect imported value-added by producing country and industry

• Matrix of values/percentages

Our measuring approach

• Harmonized indicators across countries

• Maximum use of existing statistics

Statistical challenges and technical details Session V

• Sustainability

OECD tools

• OECD Input-Output data– Symmetric industry by industry I/O tables (with separate tables for

domestic flows and imports).• Data are available for OECD and major non-OECD economies (44 countries

representing more than 95% of world GDP) and cover the years 1995, 2000 and 2005.

www.oecd.org/sti/inputoutput

• Bilateral trade by industry and end-use– Building „sustainable process‟ for regular updates using „BEC method‟

(BEC = Classification by Broad Economic Categories)

– Conversions from all revisions of HS (88, 96, 02 , 07) to both BEC and ISIC have been developed.

• Other industrial database (National account, STAN)

• Inter-country inter-industry model of 50 countries for 1995/2000/2005.– Any regional aggregations (EU15, EU27, ASEAN, NAFTA, etc)

Measurement examplesImport contents of exports (2005)

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

JPN EU15 USA CHN OtherOECD

BRIIS RoW

ICE

Data requirement: National or region aggregate I-O (domestic and import matrices)

Import content of exports by

sourcing country

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

JPN EU15 USA CHN OtherOECD

BRIIS RoW

RoW

BRIIS

Other OECD

CHN

USA

EU15

JPN

Data requirement: National I-O (domestic and import matrices)Bilateral import coefficient in goods and services

Direct and induced trade flows

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

JPN EU15 USA CHN OtherOECD

BRIIS RoW

indirect

ICE

Data requirement: National I-O (domestic and import matrices)Bilateral mirror trade coefficient

Other analytical choices for

measuring trade in value-added

• Identify the key sectors and key trade linkages

– Decomposition of economic effects by sector and export types (intermediate / final)

– Structural decomposition analysis

– Average propagation link

– Field of influence

OECD project on the measurement of trade in value-added

• 2011-2012 OECD project:

– Improving the coverage of input-output tables

– Improving the quality of assumptions used to allocate imports to users:

• By constructing bilateral trade data by end-use

• By disaggregating industries into sub-groups categorised by export and import intensity

– Investigation into the feasibility of tracking income flows

Concluding remarks

• Major challenge is presenting results that can be easily understood and interpreted by non-practitioners of national account and I-O modelling.

• The assumptions behind inter- country inter-industry modeling (IRIO/MRIO) are complex but this reflects the complexity of international flows of goods and services.

• The mathematics behind the calculations is relatively straightforward- the major difficulty is populating the various tables (I-O, trade matrixes etc.) with feasible / reliable figures for valid interpretations.

• However, there are many statistical issues to be considered: non-benchmark year up to date calculation, mid/long-term effects via capital & labour, inter-country income transfers, etc

• Co-operation with other organisations and projects – share ideas and compare results, minimise duplication of efforts.