854 Global Value

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U N I T E D N A T I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T

INVESTMENT AND VALUE ADDED

TRADE IN THE GLOBAL ECONOMY

GLOBAL VALUECHAINS

AND Development

Advance unedited version

A preliminary analysis



Global Value Chains and Developmentii

Editorial Note

The Division on Investment and Enterprise o UNCTAD is a global centre o excellence dealing with issuesrelated to investment and enterprise development in the United Nations System. It builds on three-and-a-hal decades o experience and international expertise in research and policy analysis, osters intergovernmentalconsensus-building, and provides technical assistance to developing countries.

The terms country/economy as used in this Report also reer, as appropriate, to territories or areas; thedesignations employed and the presentation o the material do not imply the expression o any opinionwhatsoever on the part o the Secretariat o the United Nations concerning the legal status o any country,territory, city or area or o its authorities, or concerning the delimitation o its rontiers or boundaries. Inaddition, the designations o country groups are intended solely or statistical or analytical convenience anddo not necessarily express a judgment about the stage o development reached by a particular country orarea in the development process. The major country groupings used in this Report ollow the classicationo the United Nations Statistical Oce. These are:

Developed countries: the member countries o the OECD (other than Chile, Mexico, the Republic o Koreaand Turkey), plus the new European Union member countries which are not OECD members (Bulgaria,Cyprus, Latvia, Lithuania, Malta and Romania), plus Andorra, Bermuda, Liechtenstein, Monaco and SanMarino.

Transition economies: South-East Europe and the Commonwealth o Independent States.

Developing economies: in general all economies not specied above. For statistical purposes, the data orChina do not include those or Hong Kong Special Administrative Region (Hong Kong SAR), Macao Special Administrative Region (Macao SAR) and Taiwan Province o China.

Reerence to companies and their activities should not be construed as an endorsement by UNCTAD o those companies or their activities.

The boundaries and names shown and designations used on the maps presented in this publication do notimply ocial endorsement or acceptance by the United Nations.

The ollowing symbols have been used in the tables:

• Two dots (..) indicate that data are not available or are not separately reported. Rows in tables havebeen omitted in those cases where no data are available or any o the elements in the row.

• A dash (–) indicates that the item is equal to zero or its value is negligible.

• A blank in a table indicates that the item is not applicable, unless otherwise indicated.

• A slash (/) between dates representing years, e.g., 1994/95, indicates a nancial year.

• Use o a dash (–) between dates representing years, e.g. 1994–1995, signies the ull period involved,including the beginning and end years.

• Reerence to “dollars” ($) means United States dollars, unless otherwise indicated.

• Annual rates o growth or change, unless otherwise stated, reer to annual compound rates.

Details and percentages in tables do not necessarily add to totals because o rounding.

The material contained in this study may be reely quoted with appropriate acknowledgement.

UNITED NATIONS PUBLICATIONUNCTAD/DIAE/2013/1

© Copyright United Nations 2013

All rights reserved



iii

UNCTAD’s Division on Investment and Enterprisebuilds on eorts in the international community tomap the distribution o value added in global trade,

launching a GVC dataset that expands coverageto include almost all countries, including developing

economies, and a broad range o industries andactivities o relevance to them. The UNCTAD-EoraGVC Database – part o UNCTAD’s FDI-TNCs-GVC

Inormation System – provides new perspectives ontrade links between economies, on the distributiono value added, income and employment resulting

rom trade, on the investment-trade nexus and onhow transnational corporations (TNCs), through

equity and contractual modes, shape patterns o value added trade.

Highlights o the ndings presented in this report:

• Global investment and trade are inextricably

intertwined through the international

production networks o frms investing in

productive assets worldwide and trading inputsand outputs in cross-border value chains o various degrees o complexity. Such value

chains (intra-rm or inter-rm, regional orglobal in nature, and commonly reerred to asGlobal Value Chains or GVCs) shaped by TNCs

account or some 80% o global trade.

• GVCs are responsible or the growing

signifcance o “double counting” in global

trade fgures. The new data shows that some28% o gross exports consist o value addedthat is rst imported by countries only to be

incorporated in products or services that arethen exported again. Thus some $5 trillion out

o the $19 trillion in global gross exports (in2010 gures) is actually double counted.

• GVCs make extensive use o services.While the share o services in gross exports

worldwide is only around 20%, almost hal (46%) o value added inputs to exports iscontributed by service-sector activities, as

most manuacturing exports require servicesor their production. In act, a signicant part o

the international production networks o TNCsare geared towards providing services inputs,as indicated by the act that more than 60% o

global FDI stock is in services activities (26% in

manuacturing and 7% in the primary sector).

This picture is similar in both developed anddeveloping economies.

• The majority o developing countries, including

the poorest, are increasingly participating in

GVCs. The developing country share in globalvalue added trade increased rom 20% in 1990

to 30% in 2000 to over 40% today. Again, therole o TNCs is instrumental, as countries witha higher presence o FDI relative to the size

o their economies tend to have a higher levelo participation in GVCs and a greater relative

share in global value added trade compared totheir share in global exports.

• GVC links in developing countries can play an

important role in economic growth. Domestic

value added created rom GVC trade canbe very signicant relative to the size o

local economies. In developing countries,or example, value added trade contributessome 28% to countries’ GDP on average, as

compared with 18% or developed countries.

Furthermore, there appears to be a positivecorrelation between participation in GVCs

and GDP per capita growth rates. Economieswith the astest growing GVC participation

have GDP per capita growth rates some 2percentage points above the average.

• There appear to be a number of distinct GVC

development paths for developing countries,

including “engaging” in GVCs, “upgrading”

along GVCs, “leaprogging” and “competing”

via GVCs. The best development outcome

may result rom increasing GVC participation

and upgrading along GVCs at the same

time. Countries that, over the last 20 years,

managed to grow both their participation

in GVCs and their domestic value added

in exports experienced GDP per capita

growth o 3.4% on average, compared to

2.2% or countries that only increased their

participation in GVCs without “upgrading”

their domestic value addition.

These fndings will have some important policy

implications. For example, GVCs can be an

important avenue or developing countries to build

Executive Summary



Global Value Chains and Developmentiv

productive capacity, including through technology

dissemination and skill building, opening up

opportunities or longer-term industrial upgrading.

However, such potential benefts o GVCs arenot automatic. Policies matter, including a set

o coherent and mutually reinorcing trade and

investment policies, as well as the right overall

development strategies.

UNCTAD intends to build on the preliminary

analyses o the new data presented in this launch

report in its orthcoming World Investment Report

2013, which will examine the mechanisms through

which GVCs can contribute to development

(e.g. market access, employment generation,

productive capacity building), as well as the risks

involved or developing countries (e.g. social and

environmental sustainability impact, the risk o remaining locked into low value adding activities,

ootlooseness o activities).

The balance o opportunities and risks associated

with GVCs makes a well-inormed policy debate

on their development impact o paramount

importance. UNCTAD hopes that its GVC

Database will stimulate and contribute to such

debate by providing new insights into the evolving

nature o globalized production networks.



v

The UNCTAD-Eora GVC Database launch report

was prepared by a team led by James Zhan

and including Richard Bolwijn, Bruno Casella

and Masataka Fujita. Carlo Altomonte served as

principal economic advisor, and Keiichiro Kanemoto

and Daniel Moran as principal data consultants.

At various stages o preparation the team benefted

rom comments and inputs received rom experts,

including Richard Baldwin, Peter Buckley, Lorraine

Eden, Gary Geref, Bart Los, Bo Meng, William

Powers and Pierre Sauvé. Comments were also

received rom UNCTAD colleagues, including Marco

Fugazza, Alessandro Nicita, Victor Ognivtsev, Miho

Shirotori and Guillermo Valles.

Research and statistical assistance was provided

by Bradley Boicourt, Lizanne Martinez and Davide

Rigo. The document was typeset by Teresita

Ventura.

UNCTAD wishes to thank the Eora project team

members or their kind collaboration.

Acknowledgements



vii

Table of Contents

Executive Summary .....................................................................................................................iii

Acknowledgements ......................................................................................................................v

Introduction ............................................................................................................................1

I. Value added trade patterns in the global economy ............................................................4

II. Value added trade patterns in the developing world ........................................................13

III. GVCs: the investment-trade nexus .....................................................................................16

IV. The development impact of GVCs ......................................................................................20

Concluding remarks: a policy analysis agenda .......................................................................24

Boxes

Box 1. International efforts to map GVCs and the UNCTAD-Eora

GVC Database ................................................................................................................. 3

Box 2. Understanding value added trade data and indicators ................................................... 5

Box 3. Estimating trade within the international production

networks of TNCs .......................................................................................................... 17

Figures

Figure 1. Value added trade: how it works ..................................................................................... 1

Figure 2. UNCTAD’s data on FDI, TNCs and GVCs ........................................................................ 2

Figure 3. Global value added in trade, 2010 ................................................................................... 4

Figure 4. Share of foreign value added in exports, by region, 2010 ............................................... 6

Figure 5. Share of foreign value added in exports, selected industries, 2010 ................................ 7

Figure 6. Share of foreign value added in exports, developed and

developing economies, selected industries, 2010........................................................... 8

Figure 7. Relative value added trade shares of the top 25 exporting economies, 2010 ................ 9

Figure 8. Domestic value added in trade as a share of GDP, by region, 2010 ............................. 10

Figure 9. GVC participation, 2010, and GVC participation growth rates,

2005-2010 ...................................................................................................................... 11Figure 10. GVC participation rate of the top 25 exporting economies, 2010 ................................. 12

Figure 11. Share of developing countries in global value added trade and

in gross exports, 1990-2010 .......................................................................................... 13

Figure 12. Domestic value added trade shares of the top 25 developing

economy exporters, 2010 .............................................................................................. 14

Figure 13. GVC participation rate of the top 25 developing economy

exporters, 2010 .............................................................................................................. 15

Figure 14. Global gross trade (exports of goods and services),

by type of TNC involvement, 2010 ................................................................................ 16

Figure 15. Sector composition of global gross exports, value added inputs

to exports, and FDI stock, 2010 .................................................................................... 18



Global Value Chains and Development viii

Figure 16. Correlation between levels of inward FDI stock and

GVC participation .......................................................................................................... 19

Figure 17. Key value added trade indicators, by quartile of inward FDI

stock relative to GDP, 2010............................................................................................ 19Figure 18. Correlation between growth in GVC participation and

GDP per capita .............................................................................................................. 21

Figure 19. GDP per capita growth rates by quartile of growth in GVC

participation, developing economies only, 1990-2010 .................................................. 22

Figure 20. GDP per capita growth rates for developing countries with high/low

growth in GVC participation, and high/low growth in

domestic value added share, 1990-2010 ...................................................................... 22

Figure 21. Possible GVC Development Paths ................................................................................ 23

Annex

Technical note on the UNCTAD-Eora GVC Database ......................................................................... 26



Introduction 1

Introduction

Figure 1. Value added trade: how it works

Source: UNCTAD.

Global trade in goods and services, which today

amounts to more than $20 trillion, includes a

signicant amount o double counting. Raw material

extracted in one country may be exported rst to a

second country or processing, then exported again

to a manuacturing plant in a third country, which

may then export it to a ourth or nal consumption.

The value o the raw material counts only once

as a GDP contribution in the original country, but

is counted several times in world exports. Value

added trade statistics aim to identiy the double

counting in gross trade gures and show wherevalue is created in global production chains (see

gure 1 or a simplied example). Such cross-

border production chains, which may comprise

only two countries, a region or a global network, are

commonly reerred to as global value chains (GVCs).

A typical GVC producing any end-product or nal

consumption will involve activities across multiple

sectors and industries, rom extractive industries

or primary sector activities, to manuacturing, to

services value added incorporated along the chain.

Value added trade statistics can lead to important

policy insights in the area o trade, investment

and development. UNCTAD, in line with its role

as a research, policy analysis and consensus

building institution working or development

(and in response to the mandate received at its

latest UNCTAD XIII ministerial meeting, as well

as requests made by the G20) aims to provideinsights into the relevance, impact and patterns

o value added trade and GVCs across the global

economy, and in particular in developing countries.

In a collaborative eort with the Eora project,1 its

Division on Investment and Enterprise has built a

value added trade dataset that covers developed

and developing countries and a broad range o

Domestic Value

Added in exports

Foreign Value Addedincorporated

Participating

countries Gross

exports

Domestic

Value Added

Double-

counting

Value chain

Country A

Country B

Country C

Country D

Raw material

extraction

Final

demandProcessing Manufacturing

2

2 + 24 = 26

2 + 24 + 46 = 72

2

26

72

100

2

24

46

72

0

2

26

28∑



Global Value Chains and Development2

Figure 2. UNCTAD’s data on FDI, TNCs and GVCs

Source: UNCTAD.

industries relevant to them: the UNCTAD-Eora GVC

Database (box 1). With this database UNCTAD has

added an important element to its FDI and TNCs

Inormation System (gure 2). The new databasewill be used as a basis or the World Investment

Report 2013 (WIR13), which will assess the

patterns, drivers and determinants, development

impact and policy implications o value added trade

and investment.

As a preview to the theme part o WIR13, and

to accompany the launch o the UNCTAD-Eora

GVC Database, this short report presents a ew

preliminary ndings based on the new data. It

essentially aims to answer a number o basic

questions that are top o mind or policymakers andthe development community:

• How much value added does trade actually

generate?

• Which countries incorporate the most oreign

value added in their exports?

• Which industries have the most segmented

value chains?

• How much value added do countries get out o

their exports?

• How signifcant is value added trade to

countries’ GDP?

• Which countries participate most in GVCs?

• How much value are developing countries

capturing rom trade?

• To what extent are developing country exports

integrated in GVCs?

• What is the role o TNCs in global trade?

• How do international production networks o

TNCs shape value added trade?

• How does the presence o TNCs aect

countries’ GVC participation?

• What is the impact o value added trade and

GVCs on economic growth?

• Is there a trade-o between GVC participation

and domestic value added?

• Are there dierent GVC development paths?

UNCTAD intends to deepen the analysis on these

and other questions, to look at how TNCs shapeglobal and regional value chains and patterns

o value added trade, to identiy the drivers and

determinants o investment in GVCs, and to assess

the impact o GVCs, including by analyzing where

and how employment and income is generated

throughout GVCs. WIR13 will also examine the

mechanisms through which GVCs can contribute

to development (e.g. market access, employment

generation, productive capacity building), as well

as the risks involved or developing countries (e.g.

social and environmental sustainability impact,the risk o remaining locked into low value adding

activities, ootlooseness o activities or vulnerability

o production due to cyclical actors). And it will

assess the implications or national and international

trade and investment policies.

FDI

Database

TNCs

Database

UNCTAD-

Eora GVC

Database

Distinguishing features

▪ Coverage of 187

economies

▪ 25-500 industries

depending on the

country

▪ Continuous timeseries

from 1990 to 2010

UNCTAD FDI-TNCs-GVC Information System



Introduction 3

Box 1. International efforts to map GVCs and the UNCTAD-Eora GVC Database

The growing importance o GVCs has led to the realization that the way international trade has traditionally been

accounted or may no longer be sucient. A growing body o work exists aimed at netting out the “double-counting”eect o GVCs on global trade, determining value added in trade, and mapping how value added moves betweencountries along GVCs beore nal consumption o end-products. Value added in trade can be estimated basedon international input-output (I-O) tables which illustrate the economic interactions between countries (see the Technical Annex). To date, and using dierent methodologies, several initiatives have sought to compile inter-countryI-O tables. A selection o the main initiatives is listed in the table below.

Project Institution Data sources Countries Industries Years Comments

UNCTAD-EoraGVC Database

UNCTAD/Eora

Nationalsupply-useand I-O tables,and I-O tablesrom Eurostat,IDE-JETRO and

OECD

187

25-500depending

on thecountry

1990-2010

“Meta” database drawingtogether many data sourcesand interpolating missingpoints to provide broad andconsistent coverage, even o data-poor countries

Inter-Country-Input-Outputmodel (ICIO)

OECD/WTONational I-Otables

40 182005,

2008, 2009

Based on national input-outputtables harmonised by theOECD

Asian InternationalI-O tables

Institute o DevelopingEconomies(IDE-JETRO)

Nationalaccounts andrm surveys

10 76

1975,1980,1985,1990,1995,2000,

2005

US-Asian tables. Also bilateral tables, includingChina-Japan.

Global Trade Analysis Project(GTAP)

PurdueUniversity

Contributionsrom individualresearchers andorganisations.

129 57 2004, 2007

Non-ocial dataset.Includes data on areas such asenergy volumes, land use, CO2emissions and internationalmigration.

World Input-Output Database(WIOD)

Consortium o 11 institutions.EU unded.

National supply-

use tables40 35 1995-2009

Based on ocial nationalaccounts statistics.Uses end-use classication toallocate fows across partnercountries

The UNCTAD-Eora GVC Database uses input-output tables to estimate the import-content ratio in exportableproducts and value added trade. Its value added trade data are derived rom the Eora global multi-region input-output (MRIO) table. The Eora MRIO brings together a variety o primary data sources including national input-output tables and main aggregates data rom national statistical oces; input-output compendia rom Eurostat,IDE (Institute o Developing Economies)–JETRO (Japan External Trade Organization) and OECD; national accountdata (the UN National Accounts Main Aggregates Database; and the UN National Accounts Ocial Data); and tradedata (the UN Comtrade international trade database and the UN ServiceTrade international trade database). Eoracombines these primary data sources into a balanced global MRIO, using interpolation and estimation in someplaces to provide a contiguous, continuous dataset or the period 1990-2010. The Eora MRIO thus builds onsome o the other eorts in the international community. Accompanying every data point in the results provided on

the Eora website (www.worldmrio.com) is an estimate o that data point’s standard deviation, refecting the extentto which it was contested, interpolated, or estimated, during the process o assembling the global MRIO romconstituent primary data sources. Further details on the EORA database can be ound in the Annex: “Technical noteon the UNCTAD-Eora GVC Database”.

The joint OECD-WTO project (see table), which recently published its rst results, is recognized as a comprehensiveeort to set a common standard or data on value added in trade. Placing signicant emphasis on methodologyit necessarily sacrices some coverage (o countries, industries and time series) or statistical rigor. In contrast,the primary objective o the UNCTAD-Eora GVC Database is extended coverage to provide a developing countryperspective. This explains the choice o the MRIO approach, the key innovation o which is the use o algorithmsthat put together unrelated data and minimize accounting discrepancies irrespective o the type o underlying data,allowing the inclusion o data-poor countries.

Source: UNCTAD.




I. Value added trade patterns in the global economy

Figure 3. Global value added in trade, 2010

Source: UNCTAD-Eora GVC Database, UNCTAD estimates.

How much value added does trade generate?

At the global level, the average oreign value added

in exports is approximately 28% (gure 3). That

means, roughly, that around $5 trillion o the $19

trillion in 2010 world exports o goods and services

has been contributed by oreign countries or

urther exports and is thus “double counted” in

global trade gures.2 The remaining $14 trillion isthe actual value added contribution o trade to the

global economy (or around one-th o global GDP).

These gures dier signicantly by country and by

industry, with important policy implications:

• At the country level, oreign value addedin exports indicates what part o country’sgross exports consist o inuts that have beenproduced by other countries, or the extent towhich a country’s exports are dependent onimported content. It is also an indication o the

level o vertical specialization o economies:

the extent to which economic activities in acountry ocus on particular tasks and activitiesin global value chains.

• At the industry level, the average oreignvalue added is a proxy or the extent to whichindustry value chains are segmented or“ne-sliced” into distinct tasks and activitiesthat generate trade, compounding thedouble counting eect. This is important orpolicymakers designing, or example, industrialdevelopment, trade and investment promotion

policies.

Which countries incorporate the most oreign value added in their exports?

Developed countries, as a whole, at 31% have

a higher share o oreign value added in exports

than the global average (gure 4), i.e. their import

dependence o exports appears higher. However,

this picture is distorted by the weight in global

gures o internal trade within the highly integrated

EU economy, which accounts or some 70%

$ Trillions ESTIMATES

“Double counting”(foreign value

added in exports)

Global gross exports Value added in trade

~19 ~5

~14

28%



I. Value added trade patterns in the global economy 5

Box 2. Understanding value added trade data and indicators

A country’s exports can be divided into domestically produced value added and imported (oreign) value added that

is incorporated into exported goods and services. Furthermore, exports can either go to a oreign market or nalconsumption or as intermediate inputs to be exported again to third countries (or back to the original country). Theanalysis o GVCs takes into account both oreign value added in exports (the upstream perspective) and exportedvalue added incorporated in third-country exports (the downstream perspective). The most common indicators,which will also be used in this report, are as ollows:

1. Foreign value added (oreign value added as a share o exports) indicates what part o a country’s grossexports consists o inputs that have been produced in other countries. It is the share o the country’s exportsthat is not adding to its GDP.3

2. Domestic value added is the part o exports created in-country. It is the share o the country’s exportsthat contributes to GDP (domestic value added trade share). The sum o oreign and domestic value addedequates to gross exports. As a share o GDP, domestic value added measures the extent to which trade con-tributes to the GDP o a country.

3. GVC participation4 indicates the portion o a country’s exports that is part o a multi-stage trade process,by adding to the oreign value added used in a country’s own exports also the value added supplied to othercountries’ exports. Although the degree to which exports are used by other countries or urther export gener-ation may appear less relevant or policymakers as it does not change the domestic value added contributiono trade, the participation rate is a useul indicator or the extent to which a country’s exports are integrated ininternational production networks and it is thus helpul in exploring the trade-investment nexus.This variablecorrects the limitation o the previous indicators in which countries at the beginning o the value chain (e.g.exporters o raw materials) have a low oreign value added content o exports by denition. It gives a morecomplete picture o the involvement o countries in GVCs, both upstream and downstream.

A country’s GVC participation, measured as a share o exports, eectively assesses the reliance o exportson GVCs. In this sense, it is also an indicator o how much hypothetical “damage” to GVCs (and global GDP)would occur i a country’s exports were blocked; alternatively, it represents the vulnerability o the GVC toshocks in the respective country.

GVC indicators can also be used to assess the extent to which industries rely on internationally integratedproduction networks. For example, a number o complex methods have been devised in the literature to measureGVC length.5 This report will use a simplication device by looking at the degree o double counting in industrieswhich, conceptually, can serve as a rough proxy or the length o GVCs.

Data on value added trade by industry can provide useul indications on comparative advantages and competitivenesso countries, and hence orm a basis or development strategies and policies. However, this short launch report willocus primarily on country-level indicators; WIR13 will explore industry value added trade data and its developmentimplications in greater detail.

Source: UNCTAD; additional reerences listed in the endnotes.

o EU originated exports. Japan and the UnitedStates show signicantly lower shares o “double

counting”.

Thus, while developing countries have a lower

share o oreign value added (25%) than the world

average (28%) their oreign value added share is

signicantly higher than in the United States and

Japan – or than in the EU, i only external trade is

taken into account. Among developing economies,

the highest shares o oreign value added in

trade are ound in East and South-East Asia andin Central America (including Mexico) where

processing industries account or a signicant part

o exports. Foreign value added in exports is much

lower in Arica, West Asia, South America and in

the transition economies, where natural resources

and commodities exports with little oreign inputs

tend to play an important role. The lowest share

o oreign value added in exports is ound in South

Asia, mainly due to the weight o services exports,

which also use relatively less oreign inputs.




Source: UNCTAD-Eora GVC Database.

Figure 4. Share of foreign value added in exports, by region, 2010

Which industries have the most segmented value chains?

The average oreign value added share o exports

and the degree o double counting in global exports

o an industry provides a rough indication o the

extent to which industries rely on internationallyintegrated production networks, as it proxies the

extent to which intermediate goods and services

cross borders until nal consumption o the

industry’s output.

Traditionally a select number o manuacturing

industries have been at the oreront o value chain

segmentation (“ne-slicing” o value chains) and

o associated trends such as outsourcing and o-

shoring. The electronics and automotive industries,

where products can be broken down into discrete

components that can be separately produced, easily

transported, and assembled in low-cost locations,

have led the way in shaping GVCs and consequently

rank highest by share o oreign value added in trade

(gure 5). A number o industries that incorporate

and process outputs rom extractive industries

and traded commodities (e.g. petroleum products,

plastics, basic chemicals) ollow closely behind. The extractive industries themselves naturally rank

much lower as they require little imported content

o exports apart rom some services. Foreign value

added in exports is thus not a ully-fedged indicator

o the GVC complexity o industries; extractive

industries are clearly a undamental “starting point”

o many GVCs, not because o their use o oreign

value added, but because they constitute value

added inputs in many other industries’ exports.

Similarly, telecommunications, services industries,

e.g. business services, nance, utilities, also rank

25%

21%

21%

16%

31%

11%

30%

27%

14%

18%

11%

39%

31%

28%

14%

13%

14%

Developing country average

Central America

Latin America and Caribbean

West Asia

South Asia

East and South-East Asia

Asia

Africa

Developing Economies

Japan

United States

European Union

Developed Economies

Global

Least Developed Countries

Transition Economies

South America

Memorandum item:

Caribbean




Figure 5. Share of foreign value added in exports, selected industries, 2010


Note: illustrative list o industries selected based on signicance in GVCs, at various levels o industry classication.

10 20 30 40 50%

1 Manufacture of ofce, accounting and computing machinery

2 Manufacture of motor vehicles, trailers and semi-trailers

3 Manufacture of radio, television and communication equipment

4 Coke, petroleum products and nuclear fuel

5 Manufacture of man-made bres plastics and synthetic rubber

6 Manufacture of electrical machinery and apparatus n.e.c.

7 Manufacture of other transport equipment

8 Rubber and plastic products

9 Manufacture of basic chemicals

10 Metal and metal products

11 Manufacture of textiles

12 Manufacture of paints, varnishes and similar coatings, etc

13 Other chemical products

14 Machinery and equipment

15 Other manufacturing16 Manufacture of wearing apparel; dressing and dyeing of fur

17 Wood and wood products

18 Precision instruments

19 Tanning of leather; manufacture of luggage, handbags, saddlery

20 Transport and storage

21 Manufactures of fertilizers, pesticides, other agro-chemical products

22 Manufacture of detergents, cleaning preparations, toiletries

23 Food, beverages and tobacco

24 Publishing, printing and reproduction of recorded media

25 Non-metallic mineral products

26 Manufacture of pharmaceuticals, medicinal chemicals

27 Construction

28 Research and deelopment

29 Recycling

30 Electricity, gas and water

31 Post and telecommunications

32 Hotels and restaurants

33 Computer and related activities

34 Mining and quarryiing

35 Other business activities

36 Retail trade, repair of personal and household goods

37 Agriculture and related service activities

38 Finance

39 Wholesale trade and commission trade

40 Rental activities

41 Real estate activities

42 Petroleum

Memorandum item:

Primary sector

Sectondary sector

Tertiary sector

29.4%

14.2%

9.6%

0




Figure 7. Domestic value added trade shares of the top 25 exporting economies, 2010


stage). For example, China, on the one hand, is

a large economy with an increasingly important

internal supply chain. On the other hand, it has

a signicant share o processing trade and is an

important exporter o electronics, the industry withthe most complex GVC linkages. Consequently,

China’s domestic value added trade share (70%)

is aligned with the median (71%) domestic value

added trade share o the top 25 global exporters

(gure 7).

A signicant number o countries with relatively low

domestic value added shares have high absolute

contributions to their GDP rom domestic value

added in exports. For example, in gure 7, in the

group o countries with domestic value added trade

shares o less than 75%, the absolute contribution

o trade to GDP is about 25%. In the group o

countries with more than a 75% share o domestic

value added in gross exports it is only around

15%. Thus, while the domestic value added trade

shares in small open economies may appear low,the absolute contribution to their GDP can be

signicant in relation to the size o their economy.

This aspect is explored urther in the next section.

How signifcant is value added trade to countries’ GDP?

Domestic value added created rom trade – the

actual contribution o trade to GDP ater discounting

imported inputs – can be signicant relative to the

size o local economies. While the contribution o

trade to global GDP is over one-th, this share

DVA component

FVA component

United States

China

Germany

Japan

France

United Kingdom

Netherlands

Korea, Republic of

Italy

Hong Kong, China

SingaporeCanada

Russian Federation

Spain

Belgium

India

Switzerland

Taiwan Province of China

Mexico

Saudi Arabia

Australia

Brazil

MalaysiaThailand

Sweden

Top 25 global

exporters

Breakdown of gross exports in domestic

and foreign value added ($ Billions)Domestic value added

trade share

89%

70%

63%

82%

69%

58%

47%

56%

73%

46%

36%

70%

91%

72%

42%

90%

71%

71%

68%

86%

87%

87%

58%

70%

60%

0 200 400 600 800 1 000 1 200 1 400 1 600 1 800 2 000





Figure 8. Domestic value added in trade as a share of GDP, by region, 2010

is higher in developing and transition economies

(gure 8). It is particularly high in Arica, West Asia

and the transition economies due to the relative

importance o exports o natural resources there

and, in part, due to the relatively small size o the

local “non-tradables” economy. The contribution

o trade to GDP is high also in East and SouthEast Asia which, on this measure, almost rivals the

highly integrated European market. This not only

refects the export competitiveness o these Asian

economies but also their higher share o domestic

value added in trade compared to Europe.

Which countries participate most in GVCs?

The value and share o developing country

exports that depend on GVCs, either because o

upstream links (oreign value added in exports) or

downstream links (exports that are incorporated in

other products and re-exported) is quite signicant

(gure 9). East and South-East Asia remains the

region with the highest level o GVC participation,

refecting its primacy as the most important region

or export-oriented manuacturing and processingactivities. Central America (including Mexico)

also has a high participation rate in the upstream

component, where it ranks equal with South-

East Asia. However, it has a lower downstream

participation rate, refecting the act that it exports

relatively more to the United States domestic

market rather than or onward exports.

A signicantly higher GVC participation rate

in commodity exporting regions due to high

downstream links (despite relatively low upstream

26%

30%

14%

27%

22%

16%

37%

18%

24%

25%

30%

28%

13%

12%

26%

18%

22%

Memorandum item:

-East Asia

European Union



South America

Caribbean

Central America


West Asia

South Asia

East and South

Asia

Africa


Japan

United States

Developed Economies

Global

Developing country average




Figure 9. GVC participation, 2010, and GVC participation growth rates, 2005-2010


Note: GVC participation indicates the share o a country’ exports that is part o a multi-stage trade process; it is the oreign valueadded used in a country’s exports (upstream perspective) plus the value added supplied to other countries’ exports (downstreamperspective), divided by total exports. GVC participation growth here is the annual growth o the sum o the upstream and downstreamcomponent values (CAGR).

links) indicates that much o their exports are

processed and incorporated in third-country

exports – i.e. they operate at the starting point o

GVCs. South Asia remains the lowest ranked region

in terms o GVC participation. Much o the services

exports rom the region satises domestic demand

in importing countries and is not used to produce

urther exports.

However, South Asia is the region with the highest

GVC participation growth rate, albeit rom a low

base. Transition economies also show aster than

average growth. Nearly all developing regions

outpace the developed world in GVC growth.

Remarkable is the rapid growth rate o GVCs in the

least developed countries partly because o a low

base in terms o absolute values.

As noted above, GVC participation – or the role that

individual countries play in international production

networks – is driven by many dierent actors,

including size o the economy, industrial structure

and level o industrialization, composition o exports

and positioning in value chains, policy actors, and

others. As a result, countries with very dierent

characteristics may be very similar in the ranking o

GVC participation (gure 10).


Memorandum item:


South America

Caribbean

Central America


West Asia

South Asia

East and South-East Asia

Asia

Africa


Japan

United States

European Union

Developed Economies

Global

Growth of GVC

participationGVC participation rates

45%

52%

38%

45%

43%

40%

48%

37%

56%

54%

54%

52%

51%

45%

66%

59%

57% 4.5%

3.7%

3.9%

4.0%

1.9%

6.1%

4.8%

5.5%

5.1%

9.5%

6.4%

4.9%

4.1%

5.5%

8.0%

9.6%

5.7%

Upstream component

Downstream component




Figure 10. GVC participation rate of the top 25

exporting economies, 2010


Note: The GVC participation rate indicates the share o acountry’s exports that is part o a multi-stage trade process; it isthe oreign value added used in a country’s exports (upstreamperspective) plus the value added supplied to other countries’exports (downstream perspective), divided by total exports.

Singapore

Belgium

Netherlands

United Kingdom

Hong Kong, China

Sweden

Malaysia

Germany

Korea, Republic of

France

China

Switzerland

Russian Federation

Saudi Arabia

Italy

Thailand

Japan

Taiwan, Province of China

Spain

Canada

United States

Mexico

Australia

Brazil

India

82%

79%

76%

76%

72%

69%

68%

64%

63%

63%

59%

59%

56%

56%

53%

52%

51%

50%

48%

48%

45%

44%

42%

37%

36%

Upstream component


For example, the United States and Mexico have

near identical GVC participation rates, but Mexican

exports include a signicant amount o processing

trade, with high oreign value added inputs, whereasUnited States exports are used more downstream

in value chains, as intermediate inputs in the exports

o other countries.

Again, GVC participation is a relative concept.

United States rms may dominate many value

chains in terms o absolute size, but in relative

terms the participation in GVCs o many smaller

economies is higher. In other words, United States

rms also export many nal products that are not

used downstream to generate urther exports.

The GVC participation rate is a useul metric or

examining the trade-investment nexus because it

indicates the extent to which countries’ exports are

integrated into international production networks.

The metric can also eectively assess the extent

to which a country’s exports depend on GVCs.

Conversely, the GVC participation rate indicates

how much hypothetical “damage” to GVCs would

occur i a country’s exports were blocked as well

as the vulnerability o the GVC to shocks in an

individual economy along the value chain.



II. Value added trade patterns in the developing world 13

II. Value added trade patterns in the developing world

How much value are developing countries capturing rom trade?

The share o global value added trade captured by

developing economies is increasing rapidly. It grew

rom around 20% in 1990, to 30% in 2000, to over

40% in 2010. As a group, developing economies

are capturing an increasing share o the global value

added trade pie (gure 11). As global trade grows,

developed economies appear to rely increasingly

on imported content or their exports, allowing

developing countries to add disproportionatelyto their domestic value added in exports. This

underscores the importance or both developed

and developing countries to keep import barriers

(tari and non-tari) in check in order to maintain

export competitiveness.

Looking at the value added trade share or the

top 25 developing economy exporters (excluding

predominantly oil-exporting countries; gure 12)

shows that exporters o natural resources and raw

materials that use little oreign value added in exports

(such as Chile or Indonesia) obtain a relatively highshare o global value added trade, as do services

exporters such as India. Relatively open developing

economies with strong export perormances and

highly integrated in GVCs (such as the Republic o

Korea, Hong Kong (China), Singapore, Malaysia)

get a lower value added contribution rom trade.

However, the absolute contribution o value added

trade to GDP in these countries is high because o

the higher relative importance o trade.

Furthermore, comparing the domestic value added

contribution to GDP o exports in East and South-

East Asian countries with their share in global

GDP – another relative measure o value added

trade perormance – yields positive results; in

other words, despite the lower share o domesticvalue added in exports o these countries, the

absolute contribution o value added trade to their

economies is very signicant.

To what extent are developing country exports integrated in GVCs?

Among the top 25 developing economy exporters

there are signicant dierences in the degree to

which their exports are integrated in – or depend on

– GVCs (gure 13). The main East and South-East Asian exporters rank highest in GVC participation

as they both import a substantial part o their

exports (oreign value added) and a signicant part

o their exports are intermediate goods that are

used in third countries’ exports. These countries’

exports are thus integrated in GVCs both upstream

and downstream; in other words, they operate in

“the middle” o GVCs. The commodity exporting

group o countries also rates relatively high in

GVC participation, but largely because o outsized

downstream usage o their export products in thirdcountries’ exports.

Some o the larger emerging markets such as

India, Brazil, Argentina and Turkey, have relatively

low GVC participation rates. These countries have

lower upstream participation levels, both because

o the nature o their exports (natural resources

and services exports tend to have less need or

imported content or oreign value added) and

because larger economies display a greater degree

o sel-suciency in production or exports. They

also have lower downstream participation levels

Figure 11. Share of developing countries in globalvalue added trade and in gross exports, 1990-2010


1990 2000 2010

Value added in trade share

Export share

30% 30%

42%

39%

22%23%




because o a ocus on exports o so-called nal-

demand goods and services, i.e. those not used as

intermediates in third-country exports.

Again, countries may have very similar GVC

participation rates or very dierent reasons. Taiwan

Province o China and Egypt have the same overall

participation rate (50%), but where the ormer uses

a signicant amount o oreign components in its

export products, the latter (Egypt) exports more or

intermediate use in third-country exports.

Figure 12. Domestic value added trade shares of the top 25 developing economy exporters, 2010


Note: Excludes predominantly oil-exporting countries.

Top 25 developing

economy exporters

Domestic value added

trade share

70%

56%

46%

36%

90%

71%

68%

87%

58%

70%

91%

80%

82%

78%84%

72%

72%

85%

91%

93%

89%

87%

87%

73%

91%

China

Korea, Republic ofHong Kong, China

Singapore

India

Taiwan Province of China

Mexico

Brazil

Malaysia

Thailand

Indonesia

Turkey

South Africa

Chile Argentina

Viet Nam

Philippines

Egypt

Colombia

Peru

Morocco

Macao, China

Pakistan

Tunisia

Bangladesh

0 100 200 300 400 500 600 1 500 1 600 1 700

Breakdown of gross exports in domestic

and foreign value added ($ Billions)

DVA component

FVA component



II. Value added trade patterns in the developing world 15

Figure 13. GVC participation rate of the top 25

developing economy exporters, 2010


Note: Excludes predominantly oil-exporting countries.

Singapore

Hong Kong, China

Malaysia

Korea, Republic of

South Africa

China

Tunisia

Philippines

Thailand

Taiwan Province of ChinaEgypt

Morocco

Chile

Viet Nam

Indonesia

Mexico

Peru

Turkey

Pakistan

Argentina

Macao, China

Brazil

India

Bangladesh

Colombia

82%

72%

68%

63%

59%

59%

59%

56%

52%

50%50%

48%

48%

48%

44%

44%

42%

41%

40%

39%38%

37%

36%

36%

26%

Upstream component





III. GVCs: the investment-trade nexus

Figure 14. Global trade (exports of goods and services), by type of TNC involvement, 2010

Source: UNCTAD estimates, based on World Investment Report 2012 (table I.8) and various sources; see also box 3.

What is the role o TNCs in global trade?

Investment and trade are inextricably intertwined.

Much o trade in natural resources is driven by large

cross-border investments in extractive industries

by globally operating TNCs. Market-seeking oreign

direct investment (FDI) by TNCs also generates trade,

oten shiting arm’s length trade to intra-rm trade.

Eciency-seeking FDI, through which rms seek to

locate discrete parts o their production process in

low-cost locations, is particularly associated withGVCs; it increases the amount o trade taking place

within the international production networks o

TNCs and contributes to the “double counting” in

global trade fows discussed in this report.

The ratio between global FDI stock and trade has

almost doubled over the last decade, increasing

rom around 50% in the mid-1990s to more than

100% in 2010, with growth rates in the FDI to

services trade ratio even higher. FDI is an increasingly

important driver o trade fows worldwide. UNCTAD

estimates that around 80% o global trade (in

terms o gross exports) is linked to the international

production networks o TNCs, either as intra-rm

trade, through non-equity modes o international

production (or NEMs, which include, among others,

contract manuacturing, licensing, and ranchising),

or through arm’s length transactions involving at

least one TNC (gure 14 and box 3).

How do international production networks o TNCs shape value added trade?

The international production networks o TNCs,

within which most trade takes place, are heavily

geared towards providing those value added inputs

required to generate trade. GVCs make extensive

use o services. While the share o services in gross

exports worldwide is only around 20%, almost

hal (46%) o value added inputs to exports is

contributed by service-sector activities, as most

manuacturing exports require services or their

Global trade ingoods and services

Non-TNCtrade

Intra-rmtrade

NEM-generatedtrade

TNC arm´ length trade

All TNC-related trade

Total trade within the international

production networks of TNCs:

~80%

ESTIMATES$ Trillions

~19 ~4

~15 ~6.3

~2.4

~6.3



III. GVCs: the investment-trade nexus 17

Box 3. Estimating trade within the international production networks of TNCs

The estimates or trade taking place with the international production networks o TNCs in gure 15 are based on

evidence on investment-trade links o individual countries and regions:6

• In the United States, in 2010, aliates o oreign TNCs accounted or 20% o exports and 28% o imports o goods, while TNCs based in the United States accounted or 45% o exports and 39% o imports. Thus sometwo-thirds o both exports and imports o goods can be considered as within the international production net-works o TNCs.

• In Europe, in 2009, French TNCs accounted or some 31% o goods exports and 24% o imports, while oreignaliates in France accounted or 34% and 38%, respectively. Thus some 64% o total French exports and 62%o total French imports o goods in 2009 can be considered as within the international production networks o TNCs. Similar scattered evidence exists or other EU countries.

• In Japan, TNCs based there accounted or 85% o exports o goods and services, while oreign aliates con-tributed a urther 8%. Thus 93% o total Japanese exports o goods and services are linked to TNCs.

• In China, oreign aliates accounted or some 50% o exports and 48% o imports in 2012. Adding the trade

activities o Chinese TNCs, although perhaps not as large as the share o their French or United States coun-terparts given the lower (but growing) share o Chinese outward FDI, would lead to estimates o trade withininternational, production networks in excess o the United States share.

• In developing countries as a group it is likely that the share o trade within the production networks o TNCs ishigher, or two reasons: (a) the productivity curve o rms is steeper than in developed countries, meaning thattrade is likely to be even more concentrated in a small number o large exporters and importers with above-average productivity, i.e. predominantly TNCs and their aliates; (b) the share o extractive industries in theirexports (at around 25%) is signicantly higher than the world average (around 17%) and the extraction andtrade o natural resources generally involves TNCs.

A signicant share o this trade is intra-rm trade, the international fows o goods and services between parentcompanies and their aliates or among these aliates, as opposed to arm’s length trade between unrelated parties(inter-rm trade). For example, the share o exports by United States aliates abroad directed to other aliatedrms, including parent rms, remained high at about 60% over the past decade. Similarly, nearly hal o the exports

o goods by oreign aliates located in the United States are shipped to the oreign parent group and as much as70% o their imports arrive rom the oreign parent group. Japanese TNCs export 40% o their goods and servicesto their own aliates abroad. Although urther evidence on intra-rm trade is patchy, the general consensus is thatintra-rm trade accounts on average or around 30% o a country’s export, with large variations across countries.

The above explanations or the most part ocus on merchandise trade. There is evidence that TNC involvement inservices trade, with a growing share o intra-rm trade in services (e.g. corporate unctions, nancial services, etc.),is even higher. Where not in the orm o intra-rm trade, services trade oten takes place in NEM relationships (IT/ BPO, call centers, etc.). NEMs as a whole (including contract manuacturing activities) are estimated to be worthover $2 trillion (see World Investment Report 2011 ).

Arm’s length trade by TNCs (exports to and imports rom unrelated parties) is estimated to be worth around $6 trillion,the residual. Non-TNC-related trade includes all transactions between rms that have only domestic operations,anonymous transactions on commodity exchanges, etc.

Source: UNCTAD.




Figure 15. Sector composition of global gross exports, value added inputs to exports, and FDI stock, 2010

production. The parallel with FDI is clear: more than

60% o global FDI stock is allocated to services

activities, a signicant part o which is linked to

GVCs (gure 15). The share o services FDI is stillmore than 35% i only non-nancial sector FDI is

considered (although nancial sector FDI is not

only a value chain in its own right but also provides

crucial services to other GVCs).

This picture is almost the same in both developed

and developing countries. Developing country gross

exports o primary sector output (commodities) and

primary sector value added in trade are only around

4 percentage points higher than the average or all

countries, driven by slightly higher primary sector

inward FDI stock (8% compared to the 7% average).

How does the presence o TNCs aect countries’ GVC participation?

The involvement o TNCs in generating value added

trade is conrmed by the statistical relationship

between FDI stock in countries and their GVC

participation rates (gure 16). The correlation is

strongly positive, and increasingly so over time,

especially in the poorest countries, indicating thatFDI may be an important avenue or developing

countries to gain access to GVCs and grow their

participation.

Ranking countries by the ratio o FDI stock over

GDP and grouping them in quartiles (gure 17)

shows that the group o countries with most FDI

relative to the size o their economies tend to have:

• higher oreign value added in their exports(oreign aliates o TNCs producing or exportstend to use value added produced by otherparts o the TNC production network);

• higher GVC participation (oreign aliateso TNCs not only use oreign inputs in theirproduction, but also supply to other parts o the TNC network or urther exports); and

• a higher contribution o value added trade totheir GDP.

Source: UNCTAD-Eora GVC Database, UNCTAD FDI Database, UNCTAD FDI Database.Note: The sectoral breakdown o gross exports is based on ISIC, rather than SITC (normally used or merchandise trade), or

consistency with the classication employed or value added trade and FDI. Thus, rened oil/petroleum products and ood andbeverages are classied under manuacturing.

7%11%

7%

71%

43%

26%

22%

46%

67%

Gross exports Value added

inputs to exports

Inward FDI

stock

Services

Manufacturing

Primary sector



III. GVCs: the investment-trade nexus 19

Source: UNCTAD-Eora GVC Database, UNCTAD FDI Database, UNCTAD analysis.

Note: data or 187 countries over 20 years. The regression between the annual GVC Participation growth and annual FDI Inward(stock) growth, in logs, shows a positive and signicant correlation, at the 5% level. This relation also holds, at the 5% level, dividing

the sample in developed and developing countries, and in two time periods (1990-2000 and 2001-2010). All regressions use lagged(one year) inward FDI stock growth rates.

Figure 17. Key value added trade indicators, by quartile of inward FDI stock relative to GDP, 2010

Source: UNCTAD-Eora GVC Database, UNCTAD FDI Database, UNCTAD analysis.

Note: data or 180 countries, ranked by inward FDI stock relative to GDP and grouped in quartiles (o 45 each); data reported aremedian values or each quartile.

Figure 16. Correlation between levels of inward FDI stock and GVC participation

9

1 3

1 7

2 1

0 5 10 15

FDI Stock

9

1

3

1 7

2 1

0 5 10 15

FDI Stock

1990−2010 Fitted values

GVC Participation vs FDI Inward Stock

Developed Countries - logsGVC Participation vs FDI Inward Stock

Developing Countries - logs

G V C p

a r t i c i p a t i o n

G V C p

a r t i c i p a t i o n

1st quartile

(Countries with high FDI

stock relative to GDP)

2nd quartile

3rd quartile

4th quartile

(Countries with low FDI

stock relative to GDP)

34%

24%

17%

18%

Foreign value added

in export

Foreign value added

GVC participation

Contribution of value added

trade to GDP

58%

54%

48%

46%

37%

30%

24%

21%




IV. The development impact of GVCs

What is the impact o value added trade and GVCs on development?

Participation in GVCs is seen by many developing

country policymakers as an important element

o their economic development strategy. They

recognize that GVCs act as a route to market or

export products and services. Production or exports

directly generates value added and contributes to

GDP, job creation, income generation, tax incomeand so orth. And, longer term, GVCs can provide

opportunities or industrial upgrading along the

value chain.

On the other hand, policymakers and the

development community recognize that GVCs

also entail risks. Not all the potential benets o

GVCs materialize automatically (as shown in this

report, local value added contributions and hence

employment and income generation may well be

limited through the use o oreign value added in

exports), and taking advantage o GVC participation(and upgrading opportunities) is dependent on the

development o productive capacities, technology

and skills. (There are many other potential pitalls

or countries in GVC participation, which will be

explored in the policy analysis or World Investment

Report 2013 ).

The experience over the last 20 years shows that,

as countries increase their participation in GVCs,

their GDP growth rates tend to increase as well. A

statistical analysis correlating GVC participation and

per capita GDP growth rates shows a signicant

and positive relationship, both or developed and

developing economies (gure 18).

However, these results only demonstrate a

correlation between the two variables and do not

necessarily show causality. In order to establish

causality, more research will be required, including

the examination o case studies.

Preliminary evidence rom the data appears to

indicate that increased GVC participation tends to

go hand in hand with aster GDP per capita growth

(gure 19). The 30 developing economies with the

highest GVC participation growth rates in the 20-

year period rom 1990 to 2010 (rst quartile) show a

median rate o GDP per capita growth in the same

period o 3.3%, compared to 2.1% or the next 30

countries, and 0.7% or the bottom 30 countries.

GDP per capita growth is only a rough and

exogenous measure o the eect o GVCs on

development. The value added trade data in the

UNCTAD-Eora GVC Database provides a detailedbreakdown o the components o value added –

labour, capital, tax, prots – allowing a more ne-

grained assessment o the economic impact o

GVC participation, which will be included in WIR13.

Is there a trade-o between GVC participation and domestic value added?

GVC participation depends on both upstream and

downstream links in the value chain. Countries

increase their GVC participation both by increasingimported content o exports (oreign value added

in exports) and by generating more value added

through goods and services or intermediate use

in the exports o third countries. Naturally, the

latter mechanism yields the positive results or the

domestic economy, as it implies growing domestic

value added in exports.

In act, both the right hand quadrants in gure 20

– countries that reduce their reliance on oreign

value added in exports – indicate higher GDP per

capita growth results than the let hand quadrants.Examples include China, Chile, the Philippines,

Thailand and Morocco.

Interestingly, both the top quadrants in the matrix

– countries with aster GVC growth rates – have

signicantly higher growth rates than the bottom

quadrants. This suggests that even those countries

that rely more on oreign value added in exports, on

average, may be better o i it results in higher GVC

participation. Countries with high GVC participation

growth rates include Indonesia, Malaysia, VietNam,

Bangladesh, Mexico and Turkey.



IV. The development impact of GVCs 21

Figure 18. Correlation between growth in GVC participation and GDP per capita

Source: UNCTAD-Eora GVC Database, UNCTAD analysis.

Note: the regression between the annual GDP per capita (in PPS) growth and annual GVC participation index growth, in logs, shows

a positive and signicant correlation, at the 5% level. This relation also holds, at the 5% level, dividing the sample in developed anddeveloping countries, and in two time periods (1990-2000 and 2001-2010). To avoid picking-up a compositional eect resulting romthe correlation between a country’ s total value added (used as a component to calculate the GVC participation index) and its percapita GDP, all regressions use lagged (one year) GVC growth rates.

Clearly the optimal policy outcome is depicted in the

top right hand quadrant, where countries increase

GVC participation through growth in the domestic

value added in exports. Examples o countries in

the top right quadrant include China, Indonesia,

Thailand and Peru. While increasing oreign value

added content in exports may be a short-term

trade-o or policymakers, longer term the creation

o domestic productive capacity yields the better

results.

Are there dierent GVC development paths?

The dierent outcomes in each o the combinations

o GVC integration and domestic value added

suggest that there may be a set o distinct “GVC

development paths” or evolutionary lines in

countries’ patterns o participation in GVCs.

Although the matrix is a simplication o reality that

cannot capture all the dynamics o development,

broadly, a number o GVC development paths can

be hypothesized (gure 21), each with a set o

prevalent trade and investment patterns:

• Engaging in GVCs. Developing countries

may see imports o intermediate goods,components and services increase, as wellas the importance o processing exports. This pattern oten coincides with an infux o processing FDI and the establishment o NEM-relationships (e.g. contract manuacturing) with TNCs.

• Preparing or GVCs. Some developingcountries may see exports remainpredominantly within sectors and industrieswith domestic productive capacity (with limitedneed or imported content). FDI infows help

produce intermediate goods and services or

G V C

g r o w t h

− 1

− . 5

0

. 5

1

−.2 −.1 0 .1 .2GDPpc growth

− 1

− . 5

0

. 5

1

G V C

g r o w t h

−.2 −.1 0 .1 .2GDPpc growth

2001−20101990−2000

GVC growth vs GDP per Capita growthDeveloped Countries

GVC growth vs GDP per Capita growthDeveloping Countries




Figure 19. GDP per capita growth rates by quartile of growth in GVC participation,

developing economies only, 1990-2010


Note: data or 120 countries, ranked by GVC participation growth and grouped in quartiles (o 30 each); growth rates reported aremedian values or each quartile.

Figure 20. GDP per capita growth rates for developing countries with high/low growth in GVC participation,

and high/low growth in domestic value added share, 1990-2010


Note: data or 123 developing countries, ranked by growth in GVC participation and domestic value added share; high includes thetop two quartiles o both rankings, low includes the bottom two; GDP per capita growth rates reported are median compound annualgrowth rates or countries in each quadrant.

Median of GDP per capita growth 1990-2010

1st quartile

(Countires with rapidlygrowing GVC participation)

4th quartile

(Countires not increasingtheir GVC participation)

2nd quartile

3rd quartile

3.3%

2.1%

1.2%

0.7%

GVC participationgrowth rate

Growth of the domestic value addedshare of exports

Low

Low

High

High

+ 2.2% + 3.4%

+ 0.7% + 1.2%

“Integrating in GVCs”

+ n.n%median GDP percapita growth rates

=

“Increasing domestic value added”



IV. The development impact of GVCs 23

Figure 21. Possible GVC Development Paths

Source: UNCTAD.

export products, substituting imports. Thesepatterns o trade and FDI preserve domestic

value added in trade, at times at the cost o

more rapid integration in GVCs.

• Upgrading in GVCs. Some developing

countries with an already signicant level

o integration in GVCs have succeeded in

increasing exports o higher value added

products and services or in capturing a

greater share o value chains (covering more

segments). Such export upgrading patterns

oten combine with an infux o FDI in adjacentvalue chain segments and higher technology

segments.

• Competing in GVCs. Some developing

countries manage to compete successully

at high value added levels through domestic

productive capacity or exports. They may see

patterns o FDI aimed at integrating domestic

operators in international production networks,

oten through M&As.

• Converting GVCs. Some developing countries

have seen the composition o their exports

shit towards processing industries requiringhigher imported content, or have even seen

productive capacity or exports convert to

engage in tasks and activities that are part

o GVCs. This process can coincide with

increased FDI in processing industries,

including through M&As, and the establishment

o NEM-relationships with TNCs.

• Leaprogging in GVCs. A ew countries

have experienced very rapid development

o domestic productive capacity or exports

competing successully at high value addedlevels. In these cases, FDI has oten acted as

a catalyst or trade integration and domestic

productive capacity building.

Further research on the eects o integration in

GVCs, increased domestic value added trade,

and associated patterns o trade and investment,

will be needed to explore the policy relevance

and implications o dierent GVC development

paths. Nevertheless, the preliminary ndings

presented in this report provide ample material or a

comprehensive policy analysis agenda.

. %

0. % .2%

“Integrating

in GVCs”

“Upgrading”

CONCEPTUAL

“Converting” “Leapfrogging”

“Engaging” “Competing”

“Preparing”

“Increasing domestic value added”




Concluding remarks: a policy analysis agenda

With this report UNCTAD’s Division on Investment

and Enterprise launches the UNCTAD-Eora GVC

Database o value added trade and investment.

The preliminary analysis o the data presented in

this report shows how global investment and trade

are inextricably intertwined through GVCs. The

international production networks o TNCs that

shape GVCs through their investments in productive

assets worldwide account or some 80% o global

trade.

UNCTAD’s data show that almost all developingcountries, including the poorest, are increasingly

participating in GVCs. Evidence on GVC links

in developing countries – based on the data

presented here and on UNCTAD’s wider research

on GVCs – suggests that they can have important

development benets:

• GVCs can acilitate access to global marketsand integration in the global economy ordeveloping countries, which no longer have todevelop an entire industry to generate exports,

but can ocus on ewer tasks within industryvalue chains.

• Participation in GVCs generates employmentand may result in aster GDP and incomegrowth.

• Moreover, GVCs can be an important avenueor developing countries to build productivecapacity, including through technologydissemination and skill building, openingup opportunities or longer-term industrialupgrading.

However, GVCs can also entail risks or developingcountries:

• Many o the potential development benetso GVCs — in particular technologydissemination, skill building and upgrading —are not automatic. Developing countries canremain locked into relatively low value addedactivities.

• The location o tasks and activities within GVCsis determined by dynamic actors — includingrelative labour productivity and cost — and

as such can shit around the internationalproduction networks o multinational rms (theycan be ootloose).

• The sustainability impact o GVCs can besignicant, starting rom the environmentalimpact o moving goods along internationallydispersed value chain segments, to therisk o rms moving activities with greaterenvironmental impact to less regulatedlocations. Similarly, the social and labourimpact o GVCs must be taken into account.

This balance o opportunities and risks makes a

well-inormed policy debate on the development

impact o GVCs o paramount importance. The

raison d’être or the UNCTAD-Eora GVC Database

on value added trade and investment is to stimulate

and contribute to such debate.

UNCTAD will, in the coming months, deepen the

analysis o the data, ocusing in particular on the

development impact and policy implications or

developing countries. Questions that UNCTAD will

aim to answer include:

• What are the implications o new insights onGVCs or investment and trade theory?

• What are the prospects or urther evolution o GVCs and their role in global investment andtrade dynamics?

• What are the drivers and determinants o the location or re-location o cross-borderproductive activity via (equity and non-equity)investment in GVCs?

• Should developing countries adopt specic

policies in their development strategy toincrease GVC participation? I so, under whatcircumstances, based on what criteria?

• How can developing country policymakerspromote upgrading over time? Is the middle-income trap a real challenge or policymakers?

• Can we measure the “ootloose” nature o some o the links in the chain? What kind o shocks and vulnerabilities might threaten thegains rom GVC participation? Is trade morevolatile within GVCs?



Concluding remarks: a policy analysis agenda 25

• What policies can maximize the benetsand minimize the negative eects o GVCparticipation in economic, social and

environmental terms?• What are the implications o the spread o

GVCs or transer pricing?

The data and policy analysis work that UNCTADwill carry out — with the involvement o experts in

the eld — will contribute to and benet rom on-going debates in UNCTAD’s discussion orumsand expert meetings, and will culminate in the

orthcoming World Investment Report 2013 onGVCs and Development. Upon publication o WIR13 the UNCTAD-Eora GVC Database will be

made available to the public.




ANNEX. Technical note on the UNCTAD-Eora GVC Database

Calculating value added trade rom the Eora data

The Eora dataset provides a multi-region input-

output (MRIO) table at the world level used to

estimate value added in trade. In particular, the

innovation with respect to national input-output

tables is that the MRIO tables break down the use o

products according to their origin: rst, splitting the

fows o products between domestically produced

or imported; second, distinguishing intermediateand nal use; third, indicating the origin o every

imported product. Thereore, using a MRIO table

can allow us to see the relationship between all

producers and consumers in all regions covered.

The construction o the Eora MRIO table ollows

several steps:7

1. The starting points are the national

supply and use tables (SUTs). National SUTs are

considered better than input-output tables because

they provide inormation on both products and

industries. A supply table provides inormation onproducts produced by each domestic industry and

a use table indicates the use o each product by

an industry or nal user. However, these tables are

only available or a limited number o countries;

the remaining countries are hence represented by

traditional input-output (I–O) tables, which can be

sourced rom available data or compiled according

to a range o technology assumptions. In order to

avoid departures rom the original raw data, Eora

decided to keep the technology assumption at the

industry and product-level made by the respectivedata provider.

2. National SUTs and I–O tables are linked

through international trade statistics using import

tables, to obtain a multi-region input-output table.

3. Ater obtaining a rst estimate o a MRIO

table, the resulting trade data have been balanced

through an industry-level balancing condition: the

total output produced by each industry must equal

the sum o the inputs used by that industry. This has

been achieved via ‘constraints data’, which are: i)

Input-output tables and main aggregates data rom

national statistical oces; ii) Input-output compendia

rom Eurostat, IDE-JETRO and OECD; iii) The UN

national accounts main aggregates database and

ocial data; iv) The UN Comtrade and UN Service

Trade international trade databases. The balancing

o the MRIO table is conducted ater the initial table

is constructed. Disturbances are also allowed in

the balancing exercise to allow or unaligned and

conficting inormation. In general, the reliability

o a balanced table increases with the qualityand amount o superior data used or balancing,

and hence it can be expected that countries with

better / more numerous statistical sources will be

represented with more condence in the nal MRIO

(see the next section or a validation o these data).

4. The time series is constructed iteratively,

by starting with an initial year estimate (year 2000),

balancing it with all the starting year constraints,

and taking the solution as the initial estimate or the

ollowing year, and so on. In each year, all available

data or that year (GDP totals, trade data, new I–Otables, interpolated I–O table estimates, and so on)

are overlaid onto the initial estimate o that year, and

the table is re-balanced.

5. Every single data point in the Eora MRIO

is accompanied by an estimate o its standard

deviation, refecting the extent to which it was

contested, interpolated, estimated, or adjusted

away rom its original value in order to assemble a

balanced global I–O table.

Reerences or urther detail about the Eora

database can be ound in the end notes.

Figure A.1 below shows a simplied MRIO table,

considering only one industry or two countries. The

industry (e.g. chemicals) in a country A produces

a good x (e.g. plastic) which can be used as an

intermediate input in the production o another

good or to serve nal demand in the same industry.

Input-output analysis assumes that the inputs

used when producing a product are related to the

industry output by a linear and xed coecient o

production unction (at least in the short run). At the



Annex 27

Figure A.1. Structure of a MRIO Table

X A

X B

V A V

B

X A X

B

A

X B

V A V

B

X A X

B

+

+ +

+

= =

Exports from A to B of

intermediates

Exports from A to B of

nal products

Intermediate use Final demand

Value added

Gross input

Gross

outputCountry A Country B Country BCountry A

Country B

Country A

Industry Industry Industry Industry

Industry

Industry

Intermediate

use of domestic

output

Intermediate

use by B of

exports from A

Intermediate

use by A of

exports from B

Intermediate

use of domestic

output

Final use

of domestic

output

Final use

of domestic

output

Final use by A

of exports

from B

Final use by B

of exports

from A

same time, the output can be used domestically by

country A or exported to another country B, where

it can also enter as an intermediate or nal demand.

Analogously, the same good can be imported rom

country B, and used in A or the production o intermediates or to serve nal demand.

The rows in a MRIO table thus indicate the use o

gross output rom a particular industry in a country.

The gross output X produced in country A (rst row)

can be used by country A itsel as intermediate or as

nal consumption, or by the other country B, again

as an intermediate input or nal product. From here,

we can retrieve a measure o gross exports rom

A to B, summing the intermediate and nal output

produced in country A and used in country B (the

grey blocks in the example above).

The columns o a MRIO table provide instead

inormation on the technology o production, as

they indicate the amounts o intermediates needed

or the production o the gross output whose use

is then decomposed along the row. Hence, each

column provides the domestic and oreign share o

intermediate in the production o one unit o output.

The rst column thus shows how much domestic

inputs contribute to the production o the gross

output o country A (rst cell, ‘Intermediate use o

domestic output’), and how much instead inputs

are sourced rom abroad through imports (second

cell, ‘Intermediate use by A o exports rom B’). The

dierence between the gross output produced ineach country and the sum o the (domestic and

oreign) inputs necessary or its production yields

the value added generated in each country (V ).

Thanks to this inormation, we can translate the

MRIO table or multiple countries and industries into

a standard I–O matrix orm:8

x = T + y

x = A x + y

(I – A)x = y

x = (I – A)-1 y = Ly (1)

where x is gross output, T is the intermediate

demand, y is nal demand, I is the identity matrix,

A is the technological coecient matrix, and L is

the Leontie inverse.9 From this general equation,

we can represent a MRIO table or a n-countries

model, still assuming that each country has one

representative industry producing a single product.

= (2)




= (3)

This n-countries’ ramework has been extended in

the UNCTAD Eora GVC Database to compute the

“value added trade” measure, that is the value

added embodied in gross trade fows. To calculatethe latter, we start rom a row vector v with each

element representing the share o value added

per unit o output by country (that is v 1 = V 1 / X 1 ),

combined with the Leontie inverse and a vector

e summarizing aggregate exports by country as

retrieved by the sum o the intermediate inputs

exported abroad and exports o nal goods10

The rst matrix T is the key matrix o our analysis,

and or ease o readability it is replicated in the next

Figure A.2. The matrix essentially describes how

the value added contained in the exports o each

country (and industry) is generated (by column)

and distributed (by row) across countries. The rst

column o the matrix describes the value added

contained in the export o country 1.11 This is

composed o two parts:

• the term T v 11 (in the matrix multiplication we

have that T v 11 = v 1L11e1 ) denotes the Domestic

Value Added (DVA) content o exports o country 1;

• the generic term T v k1 (in matrix notation T v

k1 =v k L k1e1 ) denotes the Foreign Value Added (FVA)content o exports o country 1 generatedby country k (with k ≠ 1 ). Recall that theproduction o output by country 1 (part o which is exported) requires inputs rom othercountries. In producing these inputs, the othercountries also generate value added. Hence,

this term represents the share o value addedthat has been generated in country k (v k ) andthat has been imported by country 1 (L k1 ) inorder to produce its exports (e1 ).

The (column) sum o Domestic and Foreign Value

Added, by construction, will yield the total exports

o country 1.

The other columns o the T matrix replicate the

exercise or the other countries. So in column 2 o

the matrix we will nd the term T v 22, which denotes

the DVA content o exports o country 2, as well

second column) or its exports. More specically,

in matrix expression we have T v 12 = v 1L12e 2: hence

this term represents the share o exports o country

2 (e 2 ) that depends on the value added sourced

by country 1 (v 1L12 ). The same would be true or

a country 3, in which the term T v 13 in the third

column indicates how much country 3 is sourcing

in terms o value added rom country 1. Hence,

by reading the matrix along the row, rather than

along the column (and excluding the diagonal term

T v kk ), we would have an indication o how much o each country’s domestic value added enters as an

intermediate input in the value added exported by

other countries. The latter terms is what Koopman

et al. (2011) call “indirect value added exports”

(DVX). Clearly, by construction what each country

contributes to all the others in terms o indirect

value added exports has to be equal at the world

level to what each country sources rom all the

others in terms o oreign value added, that is at

the world level FVA = DVX. The latter gives a rough,

though not perect, proxy o the double countingembedded in the gross (ocial) trade gures.

More precisely, part o the DVA exported and

incorporated in third countries’ export can itsel

return home and thus generate some urther

double counting, as the original DVA measure

would include a share o domestic value added that

is returned home ater being processed abroad.12

However, given the complexity o computing all

these terms or a MRIO with 187 countries, and

since a perect decomposition o gross exports in

as the generic term T v k2, which denotes the FVA

content o exports o country 2 generated by

country k , and so on. Hence, the DVA can be read

on the diagonal o the matrix as the generic termT v

kk or any country k in the dataset.

Now, consider country 1 and country 2. As we have

seen, country 1 is sourcing some value added rom

country 2 or its exports (the term T v 21 which we have

already considered as a component o FVA in the

rst column), but also country 2 is sourcing some

value added rom country 1 (the term T v 12 in the



Annex 29

Figure A.2. The matrix of the value added content of trade

Country 1 Country 2 Country 3 Country k Country N Country 1 Country 2

Country 3 …

Country k …

Country N

Country 2 Country 3 Country k Country N Country 1 Country 2

Country 3 …

Country k …

Country N

DVX

FVA

DVA … …

T v

11 12T … …

T v

21 22T … …

32T

v

33… T

v

3k… T

v

3N

… … … … … …

k2

T v

k3… T v

kk… T v

kN

… … … … … … …

Tv

N1 N2T

v

N3… T

v

Nk… T

v

NN

… …

v

11

v

12 13…

1k…

1N

v

21 22 23…

2k…

2N

v

31 32

v

33…

v

3k…

v

3N

… … … … … … …

k1 k2

v

k3… v

kk… v

kN

… … … … … … …

v

N1 N2

v

N3…

v

Nk…

v

NN

all its components is still under discussion in the

literature, we have not carried out this exercise in

the UNCTAD Eora GVC data (in short Eora data),

limiting ourselves to identiy the three terms o DVA,

FVA and DVX previously discussed.13

In any case, attempts by the literature to calculate

such a measure o ‘re-imported DVA’ show that the

latter is relatively small at the world level (though

it might be slightly more signicant or some

countries or industries). In particular, Koopman et

al. (2011) estimate that the domestic content o

oreign exports that nally return home is 4% o

gross exports in 2004. The results computed by

Stehrer (2012) using the WIOD database indicate

at the world level a range rom a minimum share o

2.6% in 1995 to a maximum o 3.3% in 2008, with

the gure or 2009 being at 2.9%. The OECD–WTO

initiative, in turn, estimates that the re-importedDVA equals to just 0.6% o world gross exports in

2009.

In light o this evidence, the oreign value added

component (FVA) reported in the Eora data can

thus be considered as a lower bound o the

actual “double counting” taking place in world

trade, remembering in any case that a small (and

unaccounted) raction o double counting remains

in our DVA measure.

Validating the UNCTAD Eora GVC data

As recalled in Box 1, a number o world I–O tables

nowadays exist providing a measurement o value

added trade and thus allowing, in principle, a

benchmarking exercise, at least or the commoncountries and indicators that can be identied

within each dataset.

The most simple indicator that can be commonly

computed across datasets is the oreign value

added content o exports (FVA). Koopman et al.

(2012), working with the GTAP database, estimate

that the oreign content o exports at the world level

is 21.5% in 2004 (Eora data in 2004 is 28.7%).14

Stehrer (2012) estimates that the world oreign

value added o exports (using WIOD) is 23.7% in

2009,15

while rom the OECD–WTO data one canestimate the same gure at roughly 21% o gross

exports in 2009. The same gure or the Eora data

is at 27.6%.

It seems thereore that the UNCTAD Eora GVC data

on FVA have a slight upper bias (between 4 and 7%)

at the world level with respect to other comparable

dataset. This can be expected, considering that

the dataset is the only one covering all individual

countries in the world. As such it does not include,

as others dataset do, an articial ‘Rest o the




Figure A.3. FVA share in exports, comparison between Eora and WIOD

Source: UNCTAD/Eora, WIOD.

World’ country whose I–O matrix has been derived

through a proportionality assumption based on an

‘average’ world technology. The latter could yield

a downward bias in the computed world FVA, asthe world average I–O includes by denition large,

relatively close, countries, while most excluded

countries in the ‘Rest o the World’ aggregate tend

to be small, relatively more open, economies.

To get a sense o this dierence, Figure A3 below

reports the extent o the dierence in world FVA

share between Eora and the WIOD data or various

years.16 As it can be seen, within a common time

trend o increasing oreign value added over time

(in line with evidence o a deepening globalization

process across the world), level dierences in the

two datasets are not large, and are getting smaller

over time.

Figure A4 compares instead the FVA share o all the

39 countries included in WIOD (vertical axis) with

the same measure retrieved rom the Eora data

(horizontal axis) or the year 2009 (last available year

in WIOD data). As it can be seen, both variables or

each country tend to be scattered around the 45°

degree line, thus indicating no particular bias in one

dataset or the other. Correlation is around .9.17

15%

20%

25%

30%

Eora

WIOD

1990 1995 2000 2005 2010

Figure A.4. FVA share in exports by country, WIOD vs. Eora, 2009

Source: UNCTAD/Eora GVC Database; WIOD.

W I O D

. 1

. 2

. 3

. 4

. 5

. 6

.1 .2 .3 .4 .5 .6

Eora



31

Notes and References

1 The Eora Project, originally unded by the AustralianResearch Council, based at the University o Sydneyand comprising an international team o researchers,developed the so-called “world multi-region input-output database” that is the basis or the generationo the value added trade estimates in the GVCDatabase discussed in this paper. For urther details,see http://www.worldmrio.com/.

2 Equating oreign value added with the doublecounting in global trade gures is a simplication.Some urther double counting takes place withinoreign value added as exported value added canre-enter countries to be incorporated in urther

exports, and so orth. Such circular double countingcan be signicant in some countries and someindustries, but is marginal in most.

3 This variable is related to an active literature onmeasuring vertical specialization, with the rstindicator calculated being the value o importedinputs in the overall (gross) exports o a country. Therenement to this indicator o vertical specializationcorrects or the act that the value o (gross)imports used by country A to produce exports(as retrieved rom ‘standard’ I–O tables) in realitymight incorporate the domestic value-added o the same country A that has been used as aninput by a oreign country B, rom which the samecountry A then sources. Allowing instead only orthe oreign value-added o country B to enter in thecalculation o country A’s inputs nets out this eect.See: Hummels, D., J. Ishii and K.-M. Yi (2001) “Thenature and growth o vertical specialization in worldtrade”, Journal o International Economics 54(1),75-96; and Johnson, R.C. and G. Noguera (2012)“Accounting or intermediates: Production sharingand trade in value-added”, Journal o InternationalEconomics 86(2), 224-236.

4 This indicator was rst introduced in Koopman, R.,W. Powers, Z. Wang and S.-J. Wei (2011) “Givecredit to where credit is due: tracing value added in

global production chains”, NBER Working PapersSeries 16426, September 2010, revised September2011.

5 See Fally, T. (2011). “On the Fragmentation o Production in the US”, University o Colorado-Boulder, July.

6 Estimates are based on data rom the UnitedStates Bureau o Economic Analysis (“U.S. Aliateso Foreign Companies and U.S. (Ministry o Commerce) Multinational Companies”, 2012); ChinaMOFCOM; OECD; IDE-JETRO. Data or Europerom Altomonte, C., F. Di Mauro, G. Ottaviano, A.Rungi and V. Vicard. 2012. “Global Value Chains

during the Great Trade Collapse: A Bullwhip Eect?”ECB Working Paper Series No. 1412.

7 Detailed technical inormation on the constructiono Eora can be ound in M. Lenzen, K. Kanemoto, A. Geschke, D. Moran (2012) “Mapping theStructure o the World Economy.” EnvironmentalScience & Technology 46 (15): 8374–8381.Twomore approachable summaries are also due tobe published soon: “Tracing Embodied CO2in Trade Using High-Resolution Input-Output Tables”, chapter in Computationally Intelligent Data Analysis or Sustainable Development. ed. T. Yu.and The Eora MRIO, chapter in The Sustainability

Practitioner’s Guide to MRIO. ed. J. Murray and M.Lenzen.

8 United Nations (1999). “Handbook o input–outputtable compilation and analysis”. Studies in MethodsSeries F, No 74. Handbook o National Accounting.New York.

9 See Leontie, W. (1970). “EnvironmentalRepercussions and the Economic Structure: AnInput-Output Approach”. The Review o Economicsand Statistics, 52(3), 262–271.

10 Starting with the seminal work o Hummels, Ishii& Yi (ibid.), variations o this methodology haverecently been used in a number o recent papers.Johnson & Noguera (ibid.), Timmer, M., B. Los, R.Stehrer, and G. de Vries (2012) “Fragmentation,Incomes and Jobs. An analysis o Europeancompetitiveness”, WIOD Working Paper 9,Groningen; and Stehrer, R., N. Foster and G. de Vries (2012) “Value Added and Factors in Trade: A Comprehensive Approach”, WIIW Working paper80, Vienna ultimately reapportion worldwide naldemand across countries, rather than exports,allowing them to disentangle the value addedcreated in one country due to consumption inother countries (‘trade in value added’). The OECD-WTO exercise instead ollows an approach entirelysimilar to the one presented here and originally

proposed by Koopman et al. (ibid.): this approachdisentangles the domestic and oreign value addedembodied in a country’s gross exports (reerred toin this report as ‘value added (in) trade’). Details onthe OECD-WTO dataset and method can be oundin OECD - WTO (2012), “Trade in Value-Added:Concepts, Methodologies and Challenges”, www.oecd.org; and in De Backer and Miroudout (2012).“Mapping Global Value Chains”, Paper prepared orthe WIOD Conerence: Causes and Consequenceso Globalization, Groningen, The Netherlands, 24-26 April 2012.

11 As in Stehrer et al. (ibid.).




12 For a precise decomposition, see Koopman et al.(ibid.).

13 To get an idea o the complexity o the exercise,

each yearly MRIO contains tens o millions o observations, that is around 4GB o data, buttogether with the superior variables needed tobalance the MRIO table at the world level, eachdataset to be used by the optimization algorithmgrows to 70 GB, and thus requires 2 to 10x asmuch in RAM capability to run. The Australian NCIsupercomputing acilities have been used by theEora team to retrieve value added trade data.

14 The GTAP dataset employs a dierent balancingalgorithm with respect to other existing world I–Otables (including Eora), as the balancing algorithmprioritize the correspondance between gross vs.SUT-derived trade fows rather than domestic value

added. See Koopman et al. (ibid.).

15 See Stehrer et al. (ibid.).16 The Eora data have been validated against the

WIOD data as the latter dataset gives direct access

to the original national Supply-use tables. Assuch, it allows to exactly replicate the underlyingmethodology in the construction o the indicators tobe compared across datasets.

17 Two outliers have been excluded rom thecomparison, that is Bulgaria and Luxembourg. Inboth cases FVA shares in WIOD were some 20%larger than the measure retrieved in Eora. Theaverage (absolute) dierence across the remainingcountries is instead around 6 percentage points.

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