Sourcing foreign inputs to improve firm performance
Maria Bas, Vanessa Strauss-Kahn 14 July 2014
The rise of trade in intermediate inputs is well documented, but its role in shaping domestic economies is not yet completely understood. This column presents evidence from French firms on the effects of importing intermediate inputs. Firms importing more varieties of intermediate inputs increased their productivity and exported more varieties. Foreign inputs from the most advanced economies have the strongest effect on firm productivity, but imported inputs from all countries help raise the number of export varieties.
Should trade policy fight or promote imports of intermediate inputs? While several studies have shown the recent increase in imports of intermediate goods, their role in shaping domestic economies is not yet completely understood. Following the work of Feenstra and Hanson (1996), a large literature focuses on the impact of imported intermediate inputs on employment and inequality. It concludes that, like outsourcing, imported intermediate inputs have a role (although limited) in explaining job losses and wage reductions.
employment, productivity, wages, Inequality, trade, exports, outsourcing, imports, global value chains, Intermediate inputs
Connecting Brazil to the world
Patricia Ellen, Jaana Remes 12 July 2014
Brazil has grown rapidly and reduced poverty over the past decade, but it has grown more slowly than other emerging economies and its income per capita remains relatively low by global standards. This column points out that sectors of the Brazilian economy that have been opened up to international competition have outperformed those that remain heavily protected. Deeper integration into global markets and value chains could provide competitive pressures that would improve Brazil’s productivity and living standards.
Despite a decade of rapid growth and falling poverty rates, Brazil has failed to match the global average for income growth – let alone to achieve the kind of impressive gains posted by other rapidly transforming emerging economies. As of 2012, Brazil had become the world’s seventh-largest economy, but it ranked only 95th in the world for gross national income per capita (IHS Economics and Country Risk data). To raise household living standards, Brazil needs to find a new formula for accelerating productivity growth.
Development International trade Productivity and Innovation
development, growth, productivity, globalisation, MERCOSUR, trade, openness, Brazil, global value chains
Risks and opportunities of participation in global value chains
Gary Gereffi, Xubei Luo 14 June 2014
The explosion of trade in intermediate goods has created new development opportunities, but many of the jobs at the bottom of global value chains are low-paid, insecure, and dangerous. This column argues that participation in global value chains brings risks as well as opportunities. The gains from ‘moving up the global value chain’ are not equally distributed – large, professional, high-tech firms with diversified export markets, and high-skilled workers with formalised contracts benefit the most.
The African Development Bank, OECD Development Centre, and the United Nations Development Programme became the latest international development organisations to use the global value chain (GVC) framework in examining Africa’s potential integration into GVCs in the 2014 African Economic Outlook: Global Value Chains and Africa’s Industrialisation (AfDB, OECD, and UNDP 2014).
Development International trade
industrial policy, global value chains, GVCs
Economic integration agreements and the location of vertical FDI
Juan Blyde, Alejandro Graziano, Christian Volpe Martincus 13 May 2014
Joining international production networks has been the successful path to industrialisation taken by some Asian and eastern European countries in the last decades. This column argues economic integration agreements are a major force behind the formation of these international linkages. Using a global dataset of establishments to measure global value chains, it shows that countries with integration agreements have 8% more linked subsidiaries.
Production processes are becoming increasingly fragmented. Many goods that were manufactured in single countries are now sliced in different bundles assigned to plants around the globe, giving rise to what is commonly known as global value chains (GVCs). The emergence of GVCs is allowing nations to industrialise much more rapidly by joining international production networks rather than by building entire supply chains at home. This has been the path to industrialisation taken by some Asian countries and, more recently, by some eastern European countries as well (Baldwin 2012).
trade agreements, vertical FDI, global value chains
Global Value Chains: ‘Factory World’ is emerging
Bart Los, Marcel Timmer, Gaaitzen de Vries 11 May 2014
Global value chains play an important role in many nations’ globalisation and development policies. Using a new indicator based on a global dataset – the World Input-Output Database – this column shows that international production networks have, since 2000, spread across regional blocs faster than they have spread within them. ‘Factory World’ is still a work in progress, but the construction is progressing rapidly
To measure international fragmentation of production processes, we introduce a generalisation of Feenstra and Hanson’s (1999) ‘broad’ offshoring measure (Los et al. 2014). We start from the notion that the value of a final product equals the sum of value added contributions by any industry that participated in the production process, both in the country of completion and abroad.
global value chains, global supply chains
Gross trade accounting: A transparent method to discover global value chain-related information behind official trade data: Part 2
Zhi Wang, Shang-Jin Wei, Kunfu Zhu 16 April 2014
One common measure of trade linked international production networks is the so-called VAX ratio, i.e. the ratio of value-added exports to gross exports. This column argues that this measure is not well-behaved at the sector, bilateral, or bilateral sector level, and does not capture important features of international production sharing. A new gross trade accounting framework is proposed that can better track countries’ movements up and down global value chains.
competitiveness, globalisation, trade, comparative advantage, global value chains, global supply chain, statistics
Gross trade accounting: A transparent method to discover global value chain-related information behind official trade data: Part 1
Zhi Wang, Shang-Jin Wei, Kunfu Zhu 07 April 2014
The growth of international trade in intermediate inputs means that standard trade statistics can give a misleading picture of the real patterns of production behind world trade. This column introduces an accounting framework that decomposes traditional trade flows into components that better reflect the underlying location of the value addition linked to exports.
Production segmentation across national borders has become an important feature of the world economy. With the rapid increase in intermediate trade flows, trade economists and policymakers have reached a near consensus that official trade statistics based on gross terms are deficient, often hiding the extent of global value chains. There is also widespread recognition among the official international statistics agencies that fragmentation of global production requires a new approach to measure trade, in particular the need to measure trade in value-added.
globalisation, trade, global value chains, global supply chain, statistics
Global value chains in the current trade slowdown
Michael J Ferrantino, Daria Taglioni 06 April 2014
Recent growth in trade has decelerated significantly since its sharp recovery in 2010. This column discusses the role of global value chains in international trade and their contribution to the trade slowdown. Trade in complex products organised by global value chains, in particular motor vehicles, has been more sensitive to global downturn than has trade in simple products. Thus, either focusing on simpler products less dependent on global value chains, or diversifying the export folios, could be useful in reducing the risk of a slowdown in global merchandise.
Global value chains (GVCs) involve trade in goods that have multiple production stages that take place in many different countries (that is, ‘production fragmentation’ or ‘slicing up the value chain’), and in which multiple imports and exports of intermediate goods are necessary to produce a final good, which may also be exported. Since the emergence of the North American GVC in automobiles in the 1960s and the East Asian electronics GVC in the 1970s, the role of GVCs in international trade has become more important and has attracted increasing attention.
great trade collapse, global value chains, trade slowdown
Measuring competitiveness in a world with global value chains
Michele Ruta, Mika Saito, Jarkko Turunen 11 October 2013
The depreciation of the yen by 19% since December 2012 has been a concern for many of Japan’s trading partners. Is it really bad news? This column explains that the answer depends on the structure of global value chains. It describes two approaches to incorporate the international fragmentation of production in measures of price competitiveness that can provide new insights.
Since December 2012, the yen has depreciated sharply against the euro and the dollar. Traditional economic reasoning would view this a simple gain of Japanese competitiveness vis-à-vis the US and Eurozone. The standard approach to price competitiveness calculates a nation’s real effective exchange rate, which is based on the assumptions all traded goods are for consumption or investment, and that all the value added in these goods is produced 100% locally (Armington 1969; and McGuirk 1987).
Exchange rates International trade
global value chains, real effective exchange rate, trade in tasks
Global value chain governance in the era of mega FTAs and a proposal of an international supply-chain agreement
Michitaka Nakatomi 15 August 2013
As the Doha Round continues to stagnate, mega FTAs such as the Trans-Pacific Partnership will likely play the leading role in trade rulemaking for some time to come, creating a 'spaghetti bowl' of trade rules. This column argues that we should multilateralise the results of mega FTAs on an issue-by-issue basis, starting with an International Supply Chain Agreement.
As the Doha Round of trade negotiations under the WTO continues to stagnate, mega FTAs – such as the Trans-Pacific Partnership (TPP), the economic partnership agreement between Japan and the EU, and the Transatlantic Trade and Investment Partnership between the US and the EU – will likely play the leading role in trade rulemaking for some time to come. At the same time, however, mega FTAs are meant to set rules for and enhance value chains within specific geographic regions, and they will not directly lead to the creation of global trade rules.
WTO, FTAs, global value chains