Measuring Trade in Value Added, and Beyond

The Changing Shape of Trade and Investment in the UK

London, September 2013

 

nadim.ahmad@oecd.org

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

4

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

6

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?

8

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

9

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

11

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.

12

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 %

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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

23

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

27

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

28

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

29

30

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

31

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.

33

Examples of current inconsistencies in bilateral trade statistics (Services 2009)

34

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

38

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