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Structure and length of value chains
Kirill MuradovCentre for Information and Analysis of Foreign Trade (Moscow)
Prepared for the Input-Output Workshop SpecialRegional / Multi-regional Input-Output Analysis
Osnabrück, Germany – March 30-31, 2017
• Contribute to the development of a holistic and flexible system of indicators for the measurement and analysis of value chains
• Enhance visualisation tools to explain country and industry involvement in value chains
• Follow up recent progress in methodology (Wang et al, 2016)
Motivation
Main ideas• Not just global value chains: include domestic value
chains, too!
• Explore two dimensions of value chains:• importance = contribution to total production• length = weighted average number of production
stages
• Measure importance and length and bring these together in a single visualisation!
• Decompose output rather than value added or final demand
Relation to previous studies• Decomposition of value added in trade (gross
exports accounting):• Koopman et al (2010) – seven components, total exports• Koopman et al (2012) – nine components, total exports• Stehrer (2013) – six components, bilateral exports; eight components, total exports• Wang et al (2013) – sixteen components, bilateral or total exports
• Measures of the average number of production stages:• Dietzenbacher et al (2005), Dietzenbacher and Romero (2007) – “average propagation length”• Fally (2011, 2012) – “average number of embodied production stages”, “distance to final demand”• Miller and Temurshoev (2015) – “output upstreamness”, “input downstreamness”• Ye et al (2015) – “value added propagation length”
• Decomposition of the average number of production stages in conjunction with a breakdown of production chains:• Wang et al (2016) – a GVC index system: participation in, length of and position in GVCs• this paper – a GVC index system re-invented, joint measurement and visualisation of participation in
and length of value chains, position indices revised
Concepts
Production stages
primary“in-house” use of primary inputs
intermediateuse of intermediate inputs
finaldelivery of products to final user
domestic cross-borderdomestic domestic cross-
border
at origin
in partners
at origin
in partners
at destination
in partners
at destination
Visualization
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
num
ber o
f pr
oduc
tion
stag
es
[D1] Domestic value chain → final demand at home
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
length
length
contributionto total output
[D1] Domestic value chain → final demand at home
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
domestic final production stages at home
intermediate production stages at home
D1
[D2] Domestic value chain → final demand in partner
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
cross-border final production stages
intermediate production stages at home
D1D2
to fi
nal u
ser
[D3] Domestic value chain → value chain (downstream) in partner → final demand in (the same) partner
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
1
2
3
D3
intermediate production stages at home
intermediate production stages in partners
cross-border intermediate production stages
domestic final production stages in partners
D1D2
[D4] Domestic value chain → value chain (downstream) in partner → final demand in (the next) partner
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D3 D4
intermediate production stages at home
intermediate production stages in partners
cross-border intermediate production stages
cross-border final production stages
D1D2
[O1] Domestic value chain → value added at home
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
intermediate production
stages at home
domestic primary
production stages at
home
D1D2
D3 D4
O1
[O2] Domestic value chain → value chain (upstream) in partner → value added in partner
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1D2
D3 D4
O1
intermediate production
stages at home
intermediate production
stages in partners
cross-border intermediate
production stages
domestic primary
production stages in partners
O2
Properties of the chart: geometric interpretation of the length of the total downstream value chain
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2
How long is total value chain, from the forward-looking perspective?The total area of the twelve rectangles in the right half of the chart = the weighted average number of all production stages, or total production length, of the downstream value chain
Properties of the chart: geometric interpretation of the length of the domestic downstream value chain
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2
How long is domestic value chain, from the forward-looking perspective?The total area of the four turquiose rectangles in the right half of the chart = the weighted average number of all intermediate production stages, or production length, in the home economy
Properties of the chart: geometric interpretation of the length of the cross-border downstream value chain
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2 How long is global value chain, from the forward-looking perspective?The total area of the two blue rectangles and two red rectangles in the right half of the chart = the weighted average number of, respectively, the intermediate production stages in partner economies and cross-border intermediate production stages, along the downstream value chain
Properties of the chart: geometric interpretation of the length of the deliveries to final demand
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2
And what about the deliveries to final users?The total area of the two grey rectangles and two dark grey rectangles in the right half of the chart = the weighted average number of all final production stages, always equals 1
Properties of the chart: geometric interpretation of the length of the upstream value chain
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2How long is total value chain, from the backward-looking perspective?The total area of the six rectangles in the left half of the chart = the weighted average number of all production stages, or total production length, of the upstream value chain… and similar geometric interpretation of the domestic value chain, global value chain and primary production stages
Properties of the chart: geometric interpretation of the orientation index, forwards
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2 How important is global value chain, compared to domestic value chain, from the forward-looking perspective?Index of orientation towards downstream value chain = area of the GVC-related rectangles (red and blue, right) / area of the rectangles denoting domestic value chain in the home economy (turquiose, right)
2 red + 2 blue4 turquiose
Properties of the chart: geometric interpretation of the orientation index, backwards
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2 How important is global value chain, compared to domestic value chain, from the forward-looking perspective?Index of orientation towards upstream value chain = area of the GVC-related rectangles (red and blue, left) / area of the rectangles denoting domestic value chain in the home economy (turquiose, left)
1 red + 1 blue2 turquiose
Properties of the chart: geometric interpretation of the GVC position index
GVC backward domestic domestic GVC
forward
1 share of output 0 share of output 1
num
ber o
f pr
oduc
tion
stag
es
to p
rimar
y pr
oduc
er
to fi
nal u
ser
1
2
3
D1 D2
D3 D4
O1
O2
Is backward or forward global value chain more important?Average production line position index = area of the GVC-related rectangles on the right / area of the GVC-related rectangles on the left
2 red (right) + 2 blue (right)1 red (left) + 1 blue (left)
Data and results
Data:
• 2015 edition of the OECD Inter-Country Input-Output (ICIO) tables
• 62 countries (including the rest of world as a single country) and 34 industries
• heterogeneous classification for China (69 sectors) and Mexico (50 sectors)
• years covered: 1995, 2000, 2005 and 2008 to 2011; used in this paper: 2000, 2005, 2008 and 2011
Results: country level
Russia, 2000 Russia, 2011
RUS 2000 2011Orientation forward 1.30 0.80
Orientation backward 0.49 0.43Position 2.68 1.86
Results: country level
Germany, 2000 Germany, 2011
DEU 2000 2011Orientation forward 0.52 0.77
Orientation backward 0.46 0.66Position 1.14 1.17
Results: country level
China, 2000 China, 2011
CHN 2000 2011Orientation forward 0.10 0.13
Orientation backward 0.16 0.19Position 0.66 0.69
Results: country level
Korea, 2000 Korea, 2011
KOR 2000 2011Orientation forward 0.49 0.70
Orientation backward 0.56 0.78Position 0.88 0.90
Results: country-sector level
Russia: Mining and quarrying, 2011 Germany: Motor vehicles, 2011
Results: country-sector level
China: Computer equipment (processing), 2011 Korea: Computer equipment, 2011
Results: sector level
• The good-producing industries (C01T05 – C36T37) are more involved in global value chain as compared to service industries (C50T52 – C90T93), and the total production length is also consistently larger for good producers than for service producers
• Only a few good-producing industries are positioned upstream in the global value chain; most manufacturing industries are positioned downstream
• The upstream position is more typical for service providers
C01T05_AGRC10T14_MINC15T16_FODC17T19_TEX
C20_WODC21T22_PAP
C23_PETC24_CHMC25_RBP
C26_NMMC27_METC28_FBMC29_MEQ
C30.32.33_CEQC31_ELQC34_MTRC35_TRQ
C36T37_OTMC40T41_EGW
C45_CONC50T52_WRT
C55_HTRC60T63_TRN
C64_PTLC65T67_FIN
C70_REAC71_RMQ
C72_ITSC73T74_BZS
C75_GOVC80_EDUC85_HTH
C90T93_OTS
-4 -3 -2 -1 0 1 2 3 4
primary production stages (generation of value added)cross-border intermediate production stagesintermediate production stages in partnersintermediate production stages at homefinal production stages
number of production stagesbackward forward
Results: sector level
Backward orientation in GVCs Forward orientation in GVCs
Industry code Industry description Industry
code Industry description
C34 Motor vehicles, trailers and semi-trailers
C10T14 Mining and quarrying
C90T93 Other community, social and personal services
C71 Renting of machinery and equipment
C35 Other transport equipment C50T52 Wholesale and retail trade; repairs
C36T37 Manufacturing nec; recycling C27 Basic metals
C31 Electrical machinery and apparatus, nec
C60T63 Transport and storage
C29 Machinery and equipment, nec C24 Chemicals and chemical products
C30.32.33 Computer, Electronic and optical equipment
C23 Coke, refined petroleum products and nuclear fuel
C28 Fabricated metal products
Results: country level (again)
• The most upstream in the global production segment are countries where economy relies on extractive industries (and also with a significant role of the domestic transport sector)
• There is a diverse group of countries with symmetric involvement in GVCs, and larger countries – the United Kingdom, Japan, Argentina and Mexico – are involved in shorter total value chain and global value chain
• The most downstream are some of the world’s largest economies (China, India, the United States), developing economies in Asia (Viet Nam, Cambodia, Turkey) and some of the smaller EU members
RUSISL
BRNZAFAUSNORCHLCHEHKGSAU
MYSLVAESTBELSVNFINLTU
GBRJPNARGMEX
CHNMLT
VNMTURKHMHRVTUNIND
USACYP
-3 -2 -1 0 1 2 3
primary production stages (generation of value added)cross-border intermediate production stagesintermediate production stages in partnersintermediate production stages at homefinal production stages
number of production stagesbackward forward
high
est a
vera
gepr
oduc
tion
line
posi
tion
inde
x
low
est a
vera
gepr
oduc
tion
line
posi
tion
inde
xav
erag
e pr
oduc
tion
line
posi
tion
inde
x 1±
0.05
Results: country level (again)
0
0.25
0.50
0.75
1.00
0 0.25 0.50 0.75 1.00
RUSDEUCHN
KOR
orientation towards forward GVC
orie
ntat
ion
tow
ards
bac
kwar
d G
VC
Evolution of the position of selected countries in global value chains, 2000-2005-2008-2011
Mathematical background: Destination of outputs (forward decomposition)
• Factorize the Leontief global inverse:
• Decompose bilateral outputs, reallocated to the final destinations:
• where
• Count and weigh the number of production stages, building on the power series expansions of the local Leontief inverse and H
L “´I ´ pA
¯´1ˆI ´ qA
´I ´ pA
¯´1˙´1
“
“´I ´ pA
¯´1`
´I ´ pA
¯´1 qA´I ´ pA
¯´1`
´I ´ pA
¯´1 qA´I ´ pA
¯´1 qA´I ´ pA
¯´1` . . .
XD “´I ´ pA
¯´1 pF `´I ´ pA
¯´1pH ´ IqpF `
´I ´ pA
¯´1 qF `´I ´ pA
¯´1pH ´ IqqF
H “ˆI ´ qA
´I ´ pA
¯´1˙´1
Mathematical background: Origin of inputs (backward decomposition)
• Factorize the Ghosh global inverse:
• Decompose bilateral outputs, reallocated to the origin of primary inputs:
• where
• Count and weigh the number of production stages, building on the power series expansions of the local Ghosh inverse and Q
G “ˆI ´
´I ´ pB
¯´1 qB˙´1 ´
I ´ pB¯´1
“
“´I ´ pB
¯´1`
´I ´ pB
¯´1 qB´I ´ pB
¯´1`
´I ´ pB
¯´1 qB´I ´ pB
¯´1 qB´I ´ pB
¯´1` . . .
VG “ V´I ´ pB
¯´1` VpQ ´ Iq
´I ´ pB
¯´1
Q “ˆI ´
´I ´ pB
¯´1 qB˙´1
What’s next?• Determinants of country positioning in global value
chains
• structural decomposition of the change in average production line position index
• investigation of the properties of the average production line position index
• To be presented at the 25th International Input-Output Conference (Atlantic City, June 19-23, 2017)
• Full paper is available on request. Thank you!