Measuring Trade in Value Added, and Beyond
The Changing Shape of Trade and Investment in the UK
London, September 2013
2
Background – Global Production today
• A world of increasing international fragmentation of production– Explosion of trade in intermediates as
firms specialise in stages (tasks) of production
• Gross trade flows increasingly embody components (and so value) created elsewhere
3
A simple example – the iPod
Distribution of the value added
• 299 US$– 75$ profit to US (Apple)– 73$ whls/retail US (Apple)
The Apple iPod = 299$ of Chinese ‘exports’ to US
http://blogs.computerworld.com/node/5724
– 75$ to Japan (Toshiba)– 60$ 400 parts from Asia– 15$ 16 parts from the US– 2$ assembly by China
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A slightly more complicated example – the Dreamliner
Escape slides: Air Cruisers (USA)
Horizontal Stabiliser:Alenia Aeronautica (Italy)
Centre fuselage: Alenia Aeronautica (Italy)
Final assembly: BoeingCommercial Airplanes (USA)
Vertical Stabiliser: BoeingCommercial Airplanes (USA)
Landing gear: Messier-Dowti (France)Electric brakes: Messier-Bugatti (France)Tires: Bridgestone Tires (Japan)
Doors & windows:Zodiac Aerospace (USA)PPG Aerospace (USA)
Tools/Software: Dassault Systemes (France)Navigation: Honeywell (USA)Pilot control system: Rockwell Colins (USA)Wiring: Safran (France)
Centre wing box:Fuji Heavy Industries (Japan)
Engines: GE Engines (USA),Rolls Royce (UK)
Wing box: Mitsubishi Heavy Industries (Japan)Wing ice protection: GKN Aerospace (UK)
Engine nacelles: Goodrich (USA)Aux. power unit: HamiltonSundstrand (USA)
Flight deck seats:Ipeco (UK)
Lavatories:Jamco (Japan)
Cargo doors: Saab (Sweden)
Forward fuselage:Kawasaki Heavy Industries (Japan)Spirit Aerosystems (USA)
Raked wing tips: Korean AirlinesAerospace division (Korea)
Passenger doors:Latécoère Aéroservices (France)
Prepreg composites:Toray (Japan)
Rear fuselage:Boeing South Carolina (USA)
So?
Gross trade statistics increasingly ‘multiple count’ flows in intermediates as the production process develops over several countries…
5
AB
C
Gross exports (110)
Value-added (10)
Value-added (100)
Country
Country Country
Gross exports (intermediates) (100)
………
…meaning that gross trade statistics may create ‘misleading perceptions’ and imperfect policies
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7
For example….
• Where are our export markets? • Which sectors create most value and jobs? • Does protectionism work? Is it counter-
productive– Are there costs on importers of intermediates,
particularly when they are significant exporters.
– What about those firms further upstream providing inputs to the imports?
• How should we interpret bilateral trade balances?
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How can we respond?
• By measuring the value that is added by individual firms in the production process
AB
C
Gross exports (110)
Value-added (10)
Value-added (100)
Country
Country Country
Gross exports (intermediates) (100)
How do we measure TiVA?
• Using a global IO table
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What are we doing?
• Using database on national IO tables to create a global IO table.
• OECD: IO tables for 58 economies and 37 industries for 1995/2000/2005/2008,2009, (more than 95% of world GDP)
• Bilateral trade data for the flows;
• Collaborating closely with: – other institutions/initiatives: USITC, IDE-JETRO,
WIOD; MOFCOM and forging closer links with others including Eurostat.
Launched OECD-WTO TiVA database in January 2013 10
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A database on OECD.Stat
• With a number of indicators………….– Decompositions of gross exports by industries into their
domestic and foreign content, with the domestic content split into three (direct, indirect and re-imported) components and the foreign content broken down by source country;
– The services content of gross exports by exporting industry (broken down by foreign/domestic origin);
– Bilateral trade balances based on flows of value-added embodied in domestic final demand;
– Intermediate imports embodied in exports, as a per cent of total intermediate imports.
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What does the first release tell us? Domestic content of exports
0%
20%
40%
60%
80%
100%
LUX
SVK IRL KOR
HUN CZ
E ISL NLD BEL
SVN FIN SWE EST CHN PRT
DNK
AUT ISR MEX
CHE
POL
DEU FRA
GRC IND TUR ESP ITA CAN CHL
NZL
GBR ZAF
NOR JPN IDN AUS
USA
BRA
RUS
2009 1995
13
Exports require imports foreign content of exports - UK
0%5%
10%15%20%25%30%35%
Agricult
ure Mining
Food pr
oducts Tex
tiles &
apparel
Wood & p
aper
Chemic
als &
mineral
sBas
ic metal
sMac
hinery
Electrica
l equ
ipment
Transpo
rt equ
ipment
Other
manufac
tures
Wholesa
le &
retail
Transpo
rt & tele
coms
Finance
& insu
rance
Busines
s serv
icesOth
er servi
cesTota
l
2009 1995
14
Imports and competitiveness
Per cent of total sector growth in value-added driven by exports 1995-2009
Import content growing
Import content
decreasing
15
Exports and Imports (i)
Spain
Italy
Mexico
Canada
China
United Kingdom
Korea
France
Japan
United States
Germany
0 50000 100000 150000 200000 250000
31%
23%
33%
36%
33%
31%
36%
40%
14%
17%
34%
Transport equipment: Import content of exports, $US million, 2009
Domestic Content Share
16
Exports and Imports (ii)
Malaysia
United Kingdom
Singapore
Thailand
Mexico
Chinese Taipei
Germany
Korea
Japan
United States
China
0 50000 100000 150000 200000 250000 300000 350000 400000 450000 500000
56%
25%
61%
55%
57%
45%
25%47%
18%
13%
43%
Electronic equipment: Import content of exports, $US million, 2009
Domestic Content %
17
With hubs playing an important role
Domestic; 60.7%
Germany; 8.2%
US; 3.6%
Italy; 3.2%
OtherEurope; 14.8%
Asia; 4.4%Rest of the world;
5.1%
France: Motor vehicles, 2009
Domestic; 69.1%
US; 2.4%
UK; 2.4%
France; 2.1%
OtherEu-rope; 16.3%
Asia; 3.4%Rest of the world;
4.4%
Germany: Motor vehicles, 2009
Domestic; 40.6%
US; 20.1%
China; 9.6%
Japan; 9.4%
Europe; 7.4%
Other Asia; 6.8%
Rest of the world; 6.1%
Mexico: Electronics, 2009
Domestic; 55.4%
China; 12.1%
Chinese Taipei; 4.7%
Japan; 4.1%
Europe; 5.6%
Other Asia; 8.3%
Rest of the world; 9.9%
Korea: Electronics, 2009
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And a significant share of total intermediate imports is used in exports - UK
0%
20%
40%
60%
Agricu
lture Mining
Food pr
oducts
Textiles
& appa
rel
Wood
& pape
rChe
micals
& min
erals
Basic m
etals
Machin
eryEle
ctrical
equipm
entTra
nsport
equipm
entOth
er ma
nufact
ures Util
ities
Whole
sale & re
tailTra
nsport
& tele
coms
Financ
e &
insuran
ceBus
iness s
ervice
s
Other s
ervice
s
Total
2009 1995
19
Particularly in sectors with high fragmentation
United States
Japan Mexico Germany China United Kingdom
Korea Czech Republic
Hungary0
10
20
30
40
50
60
70
80
90
Intermediate imports embodied in exports, 2009 % of total intermediate imports
Total Electronics Transport equipment
20
VA figures reveal significant and increasing export dependencies
Around and over 2/3rds in many sectors And over half
for all manufacturing
21
Services matterServices Value-Added: % of exports, 2009
Indon
esiaChin
aMex
icoChil
e
Norway
Russia
n Fed
eratio
nKore
a
South
Africa
Canad
aBraz
il
Austra
liaJa
pan
Slovak
Repub
lic
Czech
Repub
lic
Poland
New Zea
land
Hunga
ryTurk
ey
Netherl
ands
Sloven
ia
German
y
Austria Ita
ly
Switzerla
nd
Portug
alIsr
aelInd
ia
United
States
Finlan
d
Sweden
EstoniaFran
ce
Icelan
d
Denmark
BelgiumSpa
in
United
Kingdo
mIre
land
Greece
Luxe
mbourg
0
10
20
30
40
50
60
70
80
90
Foreign Domestic
22
And have a high content in goods - UK
0%
10%
20%
30%
40%
Agricu
lture
Mining
Food
produc
ts
Textil
es & a
pparel
Wood
& pape
r
Chem
icals &
min
erals
Basic
metals
Machi
nery
Electri
cal
equipm
ent
Transp
ort equ
ipment
Other
manuf
acture
s
Foreign service contents Domestic service contents 1995 Total
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Design, R&D, software etc becoming more important - Services content of transport equipment
0
10
20
30
40
50
2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995
FRA DEU ITA JPN KOR MEX SVK ESP SWE GBR USA BRA CHN IDN
Foreign Domestic
24
Trade patterns change - UK
0.0
5.0
10.0
15.0
20.0
25.0
USA DEU FRA ITA ESP IRL NLD JPN CHN CAN BEL SAU CHE AUS IND
Gross exports (EXGRSH) Domestic value added in foreign final demand (FDDVASH)
0.0
5.0
10.0
15.0
20.0
USA DEU FRA CHN ESP ITA NLD NOR JPN IRL BEL RUS CAN POL CHE
Gross imports (IMGRSH) Foreign value added in domestic final demand (FDFVASH)
-30,000
-20,000
-10,000
0
10,000
20,000
USA SAU IRL AUS SGP CHE FRA NLD ESP DEU NOR CHN
2009 Gross Trade surplus/deficit (TSGR) 2009 Value Added surplus/deficit (TSVAFD)
25
Significantly for some countries - China
0.0
5.0
10.0
15.0
20.0
25.0
30.0
USA JPN DEU GBR FRA CAN KOR RUS ITA AUS IND ESP MEX NLD HKG
Gross exports (EXGRSH) Domestic value added in foreign final demand (FDDVASH)
0.0
5.0
10.0
15.0
USA JPN DEU KOR AUS SAU TWN RUS BRA FRA IND ITA GBR CAN MYS
Gross imports (IMGRSH) Foreign value added in domestic final demand (FDFVASH)
-100,000
-50,000
0
50,000
100,000
150,000
200,000
250,000
USA GBR MEX FRA NLD VNM THA JPN BRA MYS TWN KOR
2009 Gross Trade surplus/deficit (TSGR) 2009 Value Added surplus/deficit (TSVAFD)
26
And throughout Factory Asia
0
5
10
15
20
25
30
35
40
2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995 2009 1995
Chinese Taipei
Japan Korea Malaysia Thailand Hong Kong, China
Singapore Philippines India Indonesia Viet Nam Cambodia Brunei Darussalam
Value-Added Gross
Exports to China: Gross and Value-added terms, % of total
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Who trades with who? Japan’s trade balances
Rest of the World Australia Indonesia Russian federation United Kingdom Germany Canada India Korea China United States-20000
-10000
0
10000
20000
30000
40000
Gross Trade Balance Value Added Trade Balance
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In general – the more distant the countries the more likely that gross trade statistics underestimate the relationship
Change in trade shares based on Value-Added in
-6
-4
-2
0
2
4
6
8
10
TWN KOR
PHL
JPN MYS
AUS
THA
SAU
RUS
EU27 IDN TU
RAR
GBR
A IND CHN ZAF
VNM ISR
KHM CAN
MEX
Exports Imports
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
PHL
TWN THA
MYS JPN KOR ISR AUS
USA
RUS
EU27 ZA
FIND IDN CA
NVN
M MEX
TUR
CHN
KHM CH
LAR
G
Exports Imports
BrazilUnited States
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Whilst there are limitations to the widespread calculation of trade in value-added data, the OECD-WTO initiative is to be applauded for providing a more revealing look into global trade and integration and for paving the way for further development in this area.
But it is important to stress
• That this is a work in progress and that results are
estimates• But they are robust enough to already begin to highlight
– the need for policies to account for GVCs
• But perhaps more importantly, they highlight
– the importance of capacity building and better statistics
• Improving data quality is essential
– Coherent estimates of trade in goods and services
– A new approach to Supply-Use Tables?
• With a focus on stages and trade rather than industries, per se, to better reflect firm heterogeneity (particularly MNEs).
• Import/export intensities, factoryless firms, processors, ownership
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32
What can be done now?• Improved GROSS trade data
• Import flow matrices• Better bilateral trade statistics
(integrated with SU tables) and globally consistent
• Intelligent confidentiality rules (suppress 6 digit not 2 digit HS)
• Re-export data• Second hand goods, scrap and waste.• SERVICES –EBOPS 2012.
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Examples of current inconsistencies in bilateral trade statistics (Services 2009)
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What else can be done…..now?• Capitalise on existing data to create new
indicators on exporting and importing firms
• Beyond TEC: Linking trade registers, business registers and SBS• OECD Workshop on linking business and trade statistics: 25-26
October 2012 • Exploring feasibility of creating new indicators based on export
(and import) intensities, ownership and size.
• And also provides stepping stone for trade in icnome related to investment
• Changes to classification systems to better reflect globalisation:– Factoryless producers (UNECE Task Force on Global
Production)
Extensions
• Trade in jobs and skills– But requires
• Coherent employment and value-added data
– Also important for productivity estimates
• And significant improvement in skills data (and occupations)
Jobs embodied in foreign final demand - % of total
35
LUX
ESTSVK
SVNCHE
HUNCZE BEL
AUTNLD
SWE
DNKFI
NNOR
DEUFR
AIT
AKOR
ESPGBR
GRCJP
NUSA
0
10
20
30
40
50
60 2008 1995%
Extensions
• Trade in Income related to Investment: Ownership matters: – Because value added does not always stick (compensation for use of knowledge
based assets – where increasingly registration is determined by tax environment)
– And because flows for use of IPPs are often recorded as property income and not trade in services.
– 30% of total business sector VA in 2009 in the UK generated by foreign owned firms, 15% of GDP. Accounting for the underlying flows could further change trade relationships, even though differences between GNI and GDP are small.
– In Japan for example Primary income flows (GNI minus GDP) were equivalent to about one-quarter of total TiVA flows.
• Need better FATS data, particularly on value-added and employment.
– MSITS 2010 Compilers Guide
36
37
Summary – What’s needed
• New thinking on SU tables
• Better gross trade data
• Links to microdata
• Income, Ownership and FATS
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Further information
• www.oecd.org/trade/valueadded
• Video: http://www.youtube.com/watch?feature=player_embedded&v=RZKX-0SK41U
• OECD Workshop on Measuring TiVA 5-6 December 2013