Trade in Value Added International trade past, present, future Alpbach Economic Symposium Fabienne Fortanier Head of Trade Statistics Statistics Directorate, OECD 1
Increasing international fragmentation of production The past decades have witnessed an explosion of trade in intermediates as firms specialise in stages (tasks) of production Wing box: Mitsubishi Heavy Industries (Japan) Wing ice protection: GKN Aerospace (UK) Vertical Stabiliser: Boeing Commercial Airplanes (USA) Raked wing tips: Korean Airlines Aerospace division (Korea) Horizontal Stabiliser: Alenia Aeronautica (Italy) Aux. power unit: Hamilton Sundstrand (USA) Passenger doors: Latécoère Aéroservices (France) Cargo doors: Saab (Sweden) Prepreg composites: Toray (Japan) Centre fuselage: Alenia Aeronautica (Italy) Rear fuselage: Boeing South Carolina (USA) Lavatories: Jamco (Japan) Doors & windows: Zodiac Aerospace (USA) PPG Aerospace (USA) Centre wing box: Fuji Heavy Industries (Japan) Landing gear: Messier-Dowti (France) Electric brakes: Messier-Bugatti (France) Tires: Bridgestone Tires (Japan) Forward fuselage: Kawasaki Heavy Industries (Japan) Spirit Aerosystems (USA) Escape slides: Air Cruisers (USA) Engines: GE Engines (USA), Rolls Royce (UK) Flight deck seats: Ipeco (UK) Engine nacelles: Goodrich (USA) Tools/Software: Dassault Systemes (France) Navigation: Honeywell (USA) Pilot control system: Rockwell Colins (USA) Wiring: Safran (France) Final assembly: Boeing Commercial Airplanes (USA) Final consumption 2 Final assembly 1 Trade in inputs (first tier suppliers) Decomposition of gross exports 3 5 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 4 7 6 7 6 5 4 3 2 1 Trade in inputs (second tier suppliers) Value added by second tier suppliers Value added by first tier suppliers Value added in the country of final production 2
Increasing international fragmentation of production meaning gross trade flows increasingly embody components (and so value) created elsewhere and may thus provide an incomplete or even misleading picture of international trade, hampering adequate policy making OECD-WTO Trade in Value Added initiative (TiVA) aims to increase our understanding of the process of globalization by providing insights into the value added created by each country and industry in the production of goods and services that are traded and consumed worldwide 3
From gross trade to TiVA [no direct relationship] Gross exports (100) Gross exports (130) Country A Country B Country C Value added (100) Value added (30) Value added (100) [in value added terms, there is a direct relationship between A and C]
OECD-WTO Trade in Value Added The joint OECD-WTO TiVA database includes >40 indicators, including: Domestic vs. foreign value added in exports Domestic value added embodied in foreign final demand (% GDP) Foreign value added embodied in domestic final demand (% GDP) Services value added embodied in exports The 2015 release covers 61 economies, 34 industries, years 1995/2000/2005/2008 2011 Conclusions went to high level policy meetings (including OECD MCM and G20) 5
Policy relevant insights from TiVA (1) 100 Exports increasingly depend on imports % of domestic value added embedded in exports (2011 vs 1995) 80 60 40 20 0 SAU COL BRA IDN RUS ARG AUS JPN USA NZL NOR ZAF NLD CHL HKG CHE GBR CAN IND ROU GRC FRA ISR DEU TUR ITA ESP CRI SWE MEX CHN DNK PRT BEL VNM THA BGR MYS KOR SGP TWN IRL CZE SVK HUN LUX 2011 1995
Policy relevant insights from TiVA (2) Services account for ~half total value added (domestic + foreign) in exports % of services VA in exports, domestic and foreign (2011 vs 1995) 100 80 60 40 20 0 HKG LUX NLD IRL SGP BEL DNK GRC GBR FRA CHE ISR ESP SWE PRT IND NZL CRI USA ITA TUR HUN DEU JPN BGR BRA CZE SVK TWN AUS ZAF CAN ARG THA RUS CHN MYS ROU KOR NOR VNM MEX CHL IDN COL SAU 2011_domestic VA 2011_foreing VA 1995_total
Policy relevant insights from TiVA(3) 300.000 Bilateral trade balances change Chinese trade surpluses and deficits are much less pronounced in value added terms 250.000 200.000 150.000 100.000 50.000 0-50.000-100.000 USA MEX IND GBR FRA DEU AUS MYS TWN KOR Gross Trade balance Value Added Trade Balance 8
Policy relevant insights from TiVA (4) Chinese households have been important drivers of export growth in recent years..what does a slowdown imply? 40% 30% 20% 10% 0% TUR ARG MEX IND ITA RUS GBR FRA USA CAN DEU SAU IDN BRA ZAF KOR AUS JPN Share of increase in total exports in VA terms driven by increased final demand from China, 2005-2011 Share of total exports in VA terms for Chinese final demand 2011 9
TiVA methodology: the ICIO The inter-country input-output table (ICIO) forms the core system from which the TiVA indicators (and many others!) can be derived It is a tool to decompose all production and consumption flows into their value added sources (by country and industry) Constructed by combining: National Supply-Use / Input-Output tables (with split in domestic and imported use) National accounts statistics Main aggregates (GDP, final demand components, trade) Value added and output by industry Bilateral trade (goods, services, non-resident), by industry and end-use category 10
The TiVA ICIO is being used to address many other policy questions Environmental footprint indicators: Combining the ICIO with Green House Gas emissions data (by industry) to estimate consumption-based emissions 11
The ICIO is being used to address many other policy questions.. Employment: Combining the ICIO with a jobs by industry vector to estimate jobs sustained by foreign final demand Estimated employment sustained by foreign final demand, by skill level, 2001 and 2013, as share of business sector employment) 12
but much more is possible For example: Address firm heterogeneity in GVCS: foreign owned enterprises, SMEs, trading firms, processing firms, (but also: informal sector) Analyse the role of FDI in production, consumption, GVCs and trade Better understand the role of investment to improve productivity estimates (e.g. via investment flow matrices) etc 13
70% 60% 50% 40% 30% 20% 10% 0% Example (1): SMEs contribution to exports in gross and value-added terms Role of SMEs in international trade and GVCs greater than observed in gross export data alone 80% SMEs' share in gross exports SMEs' share in value added exports Value added exports of SMEs=Direct value added in SMEs exports + value added in inputs produced by SMEs and used by exporting firms 14
Example (2): the import content of exports of foreign-owned firms is higher Total domestic value added content of exports of foreign owned firms is lower than that of domestic owned firms 90% Domestic Value Added as % of exports, 2011 80% 70% 60% 50% 40% 30% 20% 10% 0% AUT DEU DNK EST FIN FRA GBR HUN IRL ITA NLD POL PRT SVK SWE Domestic owned firms Foreign owned firms 15
OECD-WTO: Mainstreaming TiVA Improve data quality and timeliness Started the official data collection of SUTs among OECD, accession countries and key partners (including China) Collaborate with countries to improve national data quality and timeliness Continued upgrading of OECD-WTO TiVA compilation methods Improve level of detail (firm heterogeneity) OECD Expert Group on Extended Supply and Use Tables OECD Working Party on International Trade in Goods and Services Statistics (WPTGS) (on linked business and trade statistics) OECD Working Group on International Investment Statistics (WGIIS) (on FDI/FATS statistics) Ongoing secretariat work to provide proofs of concept and methodological support 16
OECD-WTO: Mainstreaming TiVA Increase country coverage e.g. via regional partnerships: APEC, Eurostat, IPEA-UNECLAC, UNESCWA, UNECA and develop the tools and mechanisms to ensure consistency between regional initiatives and TiVA, via the collaborative and transparent production of public goods Balanced international merchandise trade statistics (in which trade asymmetries are reconciled) Estimated trade in services statistics (in which missing values are estimated and asymmetries reconciled) Develop the integrated international economic accounting framework of tomorrow 17
Thank you Contact: Fabienne.Fortanier@oecd.org 18