Structure and length of value chains -...

Structure and length of value chains

Kirill MuradovCentre for Information and Analysis of Foreign Trade (Moscow)

Prepared for the Input-Output Workshop SpecialRegional / Multi-regional Input-Output Analysis

Osnabrück, Germany – March 30-31, 2017

• Contribute to the development of a holistic and flexible system of indicators for the measurement and analysis of value chains

• Enhance visualisation tools to explain country and industry involvement in value chains

• Follow up recent progress in methodology (Wang et al, 2016)

Motivation

Main ideas• Not just global value chains: include domestic value

chains, too!

• Explore two dimensions of value chains:• importance = contribution to total production• length = weighted average number of production

stages

• Measure importance and length and bring these together in a single visualisation!

• Decompose output rather than value added or final demand

Relation to previous studies• Decomposition of value added in trade (gross

exports accounting):• Koopman et al (2010) – seven components, total exports• Koopman et al (2012) – nine components, total exports• Stehrer (2013) – six components, bilateral exports; eight components, total exports• Wang et al (2013) – sixteen components, bilateral or total exports

• Measures of the average number of production stages:• Dietzenbacher et al (2005), Dietzenbacher and Romero (2007) – “average propagation length”• Fally (2011, 2012) – “average number of embodied production stages”, “distance to final demand”• Miller and Temurshoev (2015) – “output upstreamness”, “input downstreamness”• Ye et al (2015) – “value added propagation length”

• Decomposition of the average number of production stages in conjunction with a breakdown of production chains:• Wang et al (2016) – a GVC index system: participation in, length of and position in GVCs• this paper – a GVC index system re-invented, joint measurement and visualisation of participation in

and length of value chains, position indices revised

Concepts

Production stages

primary“in-house” use of primary inputs

intermediateuse of intermediate inputs

finaldelivery of products to final user

domestic cross-borderdomestic domestic cross-

border

at origin

in partners

at origin

in partners

at destination

in partners

at destination

Visualization

GVC backward domestic domestic GVC

forward

1 share of output 0 share of output 1

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

num

ber o

f pr

oduc

tion

stag

es

[D1] Domestic value chain → final demand at home


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

length

length

contributionto total output

[D1] Domestic value chain → final demand at home


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

domestic final production stages at home

intermediate production stages at home

D1

[D2] Domestic value chain → final demand in partner


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

cross-border final production stages


D1D2

to fi

nal u

ser

[D3] Domestic value chain → value chain (downstream) in partner → final demand in (the same) partner


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

1

2

3

D3


intermediate production stages in partners

cross-border intermediate production stages

domestic final production stages in partners

D1D2

[D4] Domestic value chain → value chain (downstream) in partner → final demand in (the next) partner


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D3 D4


intermediate production stages in partners

cross-border intermediate production stages

cross-border final production stages

D1D2

[O1] Domestic value chain → value added at home


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

intermediate production

stages at home

domestic primary

production stages at

home

D1D2

D3 D4

O1

[O2] Domestic value chain → value chain (upstream) in partner → value added in partner


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1D2

D3 D4

O1


stages at home


stages in partners

cross-border intermediate

production stages

domestic primary

production stages in partners

O2

Properties of the chart: geometric interpretation of the length of the total downstream value chain


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2

How long is total value chain, from the forward-looking perspective?The total area of the twelve rectangles in the right half of the chart = the weighted average number of all production stages, or total production length, of the downstream value chain

Properties of the chart: geometric interpretation of the length of the domestic downstream value chain


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2

How long is domestic value chain, from the forward-looking perspective?The total area of the four turquiose rectangles in the right half of the chart = the weighted average number of all intermediate production stages, or production length, in the home economy

Properties of the chart: geometric interpretation of the length of the cross-border downstream value chain


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2 How long is global value chain, from the forward-looking perspective?The total area of the two blue rectangles and two red rectangles in the right half of the chart = the weighted average number of, respectively, the intermediate production stages in partner economies and cross-border intermediate production stages, along the downstream value chain

Properties of the chart: geometric interpretation of the length of the deliveries to final demand


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2

And what about the deliveries to final users?The total area of the two grey rectangles and two dark grey rectangles in the right half of the chart = the weighted average number of all final production stages, always equals 1

Properties of the chart: geometric interpretation of the length of the upstream value chain


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2How long is total value chain, from the backward-looking perspective?The total area of the six rectangles in the left half of the chart = the weighted average number of all production stages, or total production length, of the upstream value chain… and similar geometric interpretation of the domestic value chain, global value chain and primary production stages

Properties of the chart: geometric interpretation of the orientation index, forwards


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2 How important is global value chain, compared to domestic value chain, from the forward-looking perspective?Index of orientation towards downstream value chain = area of the GVC-related rectangles (red and blue, right) / area of the rectangles denoting domestic value chain in the home economy (turquiose, right)

2 red + 2 blue4 turquiose

Properties of the chart: geometric interpretation of the orientation index, backwards


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2 How important is global value chain, compared to domestic value chain, from the forward-looking perspective?Index of orientation towards upstream value chain = area of the GVC-related rectangles (red and blue, left) / area of the rectangles denoting domestic value chain in the home economy (turquiose, left)

1 red + 1 blue2 turquiose

Properties of the chart: geometric interpretation of the GVC position index


forward


num

ber o

f pr

oduc

tion

stag

es

to p

rimar

y pr

oduc

er

to fi

nal u

ser

1

2

3

D1 D2

D3 D4

O1

O2

Is backward or forward global value chain more important?Average production line position index = area of the GVC-related rectangles on the right / area of the GVC-related rectangles on the left

2 red (right) + 2 blue (right)1 red (left) + 1 blue (left)

Data and results

Data:

• 2015 edition of the OECD Inter-Country Input-Output (ICIO) tables

• 62 countries (including the rest of world as a single country) and 34 industries

• heterogeneous classification for China (69 sectors) and Mexico (50 sectors)

• years covered: 1995, 2000, 2005 and 2008 to 2011; used in this paper: 2000, 2005, 2008 and 2011

Results: country level

Russia, 2000 Russia, 2011

RUS 2000 2011Orientation forward 1.30 0.80

Orientation backward 0.49 0.43Position 2.68 1.86


Germany, 2000 Germany, 2011

DEU 2000 2011Orientation forward 0.52 0.77



China, 2000 China, 2011

CHN 2000 2011Orientation forward 0.10 0.13



Korea, 2000 Korea, 2011

KOR 2000 2011Orientation forward 0.49 0.70


Results: country-sector level

Russia: Mining and quarrying, 2011 Germany: Motor vehicles, 2011

Results: country-sector level

China: Computer equipment (processing), 2011 Korea: Computer equipment, 2011

Results: sector level

• The good-producing industries (C01T05 – C36T37) are more involved in global value chain as compared to service industries (C50T52 – C90T93), and the total production length is also consistently larger for good producers than for service producers

• Only a few good-producing industries are positioned upstream in the global value chain; most manufacturing industries are positioned downstream

• The upstream position is more typical for service providers

C01T05_AGRC10T14_MINC15T16_FODC17T19_TEX

C20_WODC21T22_PAP

C23_PETC24_CHMC25_RBP

C26_NMMC27_METC28_FBMC29_MEQ

C30.32.33_CEQC31_ELQC34_MTRC35_TRQ

C36T37_OTMC40T41_EGW

C45_CONC50T52_WRT

C55_HTRC60T63_TRN

C64_PTLC65T67_FIN

C70_REAC71_RMQ

C72_ITSC73T74_BZS

C75_GOVC80_EDUC85_HTH

C90T93_OTS

-4 -3 -2 -1 0 1 2 3 4

primary production stages (generation of value added)cross-border intermediate production stagesintermediate production stages in partnersintermediate production stages at homefinal production stages

number of production stagesbackward forward

Results: sector level

Backward orientation in GVCs Forward orientation in GVCs

Industry code Industry description Industry

code Industry description

C34 Motor vehicles, trailers and semi-trailers

C10T14 Mining and quarrying

C90T93 Other community, social and personal services

C71 Renting of machinery and equipment

C35 Other transport equipment C50T52 Wholesale and retail trade; repairs

C36T37 Manufacturing nec; recycling C27 Basic metals

C31 Electrical machinery and apparatus, nec

C60T63 Transport and storage

C29 Machinery and equipment, nec C24 Chemicals and chemical products

C30.32.33 Computer, Electronic and optical equipment

C23 Coke, refined petroleum products and nuclear fuel

C28 Fabricated metal products

Results: country level (again)

• The most upstream in the global production segment are countries where economy relies on extractive industries (and also with a significant role of the domestic transport sector)

• There is a diverse group of countries with symmetric involvement in GVCs, and larger countries – the United Kingdom, Japan, Argentina and Mexico – are involved in shorter total value chain and global value chain

• The most downstream are some of the world’s largest economies (China, India, the United States), developing economies in Asia (Viet Nam, Cambodia, Turkey) and some of the smaller EU members

RUSISL

BRNZAFAUSNORCHLCHEHKGSAU

MYSLVAESTBELSVNFINLTU

GBRJPNARGMEX

CHNMLT

VNMTURKHMHRVTUNIND

USACYP

-3 -2 -1 0 1 2 3

primary production stages (generation of value added)cross-border intermediate production stagesintermediate production stages in partnersintermediate production stages at homefinal production stages

number of production stagesbackward forward

high

est a

vera

gepr

oduc

tion

line

posi

tion

inde

x

low

est a

vera

gepr

oduc

tion

line

posi

tion

inde

xav

erag

e pr

oduc

tion

line

posi

tion

inde

x 1±

0.05

Results: country level (again)

0

0.25

0.50

0.75

1.00

0 0.25 0.50 0.75 1.00

RUSDEUCHN

KOR

orientation towards forward GVC

orie

ntat

ion

tow

ards

bac

kwar

d G

VC

Evolution of the position of selected countries in global value chains, 2000-2005-2008-2011

Mathematical background: Destination of outputs (forward decomposition)

• Factorize the Leontief global inverse:

• Decompose bilateral outputs, reallocated to the final destinations:

• where

• Count and weigh the number of production stages, building on the power series expansions of the local Leontief inverse and H

L “Í ´ pA

¯´1Î ´ qA

Í ´ pA

¯´1˙´1

“

“Í ´ pA

¯´1`

Í ´ pA

¯´1 qAÍ ´ pA

¯´1`

Í ´ pA

¯´1 qAÍ ´ pA

¯´1 qAÍ ´ pA

¯´1` . . .

XD “Í ´ pA

¯´1 pF `Í ´ pA

¯´1pH ´ IqpF `

Í ´ pA

¯´1 qF `Í ´ pA

¯´1pH ´ IqqF

H “Î ´ qA

Í ´ pA

¯´1˙´1

Mathematical background: Origin of inputs (backward decomposition)

• Factorize the Ghosh global inverse:

• Decompose bilateral outputs, reallocated to the origin of primary inputs:

• where

• Count and weigh the number of production stages, building on the power series expansions of the local Ghosh inverse and Q

G “Î ´

Í ´ pB

¯´1 qB˙´1 ´

I ´ pB¯´1

“

“Í ´ pB

¯´1`

Í ´ pB

¯´1 qBÍ ´ pB

¯´1`

Í ´ pB

¯´1 qBÍ ´ pB

¯´1 qBÍ ´ pB

¯´1` . . .

VG “ VÍ ´ pB

¯´1` VpQ ´ Iq

Í ´ pB

¯´1

Q “Î ´

Í ´ pB

¯´1 qB˙´1

What’s next?• Determinants of country positioning in global value

chains

• structural decomposition of the change in average production line position index

• investigation of the properties of the average production line position index

• To be presented at the 25th International Input-Output Conference (Atlantic City, June 19-23, 2017)

• Full paper is available on request. Thank you!

Structure and length of value chains -...

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