Measures of participation in Global value chains and global business cycles NBER Working Paper No. 23222 Characterizing Global Value Chains: Production Length and Upstreamness NBER Working Paper No 23261 Zhi wang Shang-Jin Wei uibe george Mason University Columbia University and NBER Xinding yu Kunfu zh UIBE UIBE 4th Aug. 2017 aug, UIBE, Beiing
Measures of Participation in Global Value Chains and Global Business Cycles NBER Working Paper No. 23222 Characterizing Global Value Chains: Production Length and Upstreamness NBER Working Paper No. 23261 Zhi Wang UIBE & George Mason University Shang-JinWei Columbia University and NBER Xinding Yu UIBE 4 th Aug, 2017 UIBE, Beijing Kunfu Zhu UIBE
Presentation outline motivations Measures of GVC Participation, Length and Position Decompose GDP and final goods production by country/industry to identify gvC related and unrelated production activities Intuition behind the derivation of these indexes Estimation results Why these new gvc indexes are better? Has gvc become longer or shorter over time? Can these new indexes help to quantify the roles of gvc in the economic shocks of recent global financial crisis Conclusion
Presentation outline • Motivations • Measures of GVC Participation, Length and Position ▪ Decompose GDP and final goods production by country/industry to identify GVC related and unrelated production activities ▪ Intuition behind the derivation of these indexes • Estimation Results ▪ Why these new GVC indexes are better? ▪ Has GVC become longer or shorter over time？ ▪ Can these new indexes help to quantify the roles of GVC in the economic shocks of recent global financial crisis • Conclusion
Measures of Participation in Global Value Chains and Global business cycles Introduction To provide a framework to decompose production activities into different types Pure domestic Traditional final goods trade Simple production sharing(only I border crossing) Complex production sharing (at least 2 border crossings) d Use ICio table to classify the factor embedded in various products into GVC and non- GVC activities based on whether they cross national borders for production or not Forward linkage: Producer's perspective Backward linkage: User's perspective d To propose a set of GVC participation indexes
Introduction ◼ To provide a framework to decompose production activities into different types. ➢ Pure domestic ➢ Traditional final goods trade ➢ Simple production sharing (only 1 border crossing) ➢ Complex production sharing (at least 2 border crossings) ◼ Use ICIO table to classify the factor embedded in various products into GVC and nonGVC activities based on whether they cross national borders for production or not. ➢ Forward linkage: Producer’s perspective ➢ Backward linkage: User’s perspective ◼ To propose a set of GVC participation indexes. Measures of Participation in Global Value Chains and Global Business Cycles
Outline Accounting framework ■ Numerical results d Application: Economic Growth and GVC Participation
Outline ◼ Accounting Framework ◼ Numerical Results ◼ Application: Economic Growth and GVC Participation
Accounting framework Consider a world economy with g countries and n sectors Table l general Inter- Country Input-Output table Outputs Intermediate Use Final demand Total G OUtput Inputs z12z2 z1lry1y2…y1glx1 Intermediate 2221 222 z2gy21 y2 y29‖ly2 Inputs G‖1g1Z z99Yg1 Y92 Y99 X9 Value-added val2Va2|…Vas Total input x),(x2)- Xo)
Accounting Framework Table 1 General Inter-Country Input-Output table Outputs Inputs Intermediate Use Final Demand Total 1 2 ⋯ G 1 2 ⋯ G Output Intermediate Inputs 1 𝑍 11 𝑍 12 ⋯ 𝑍 1𝑔 𝑌 11 𝑌 12 ⋯ 𝑌 1𝑔 𝑋 1 2 𝑍 21 𝑍 22 ⋯ 𝑍 2𝑔 𝑌 21 𝑌 22 ⋯ 𝑌 2𝑔 𝑋 2 ⋮ ⋮ ⋮ ⋱ ⋮ ⋮ ⋮ ⋱ ⋮ ⋮ G 𝑍 𝑔1 𝑍 𝑔2 ⋯ 𝑍 𝑔𝑔 𝑌 𝑔1 𝑌 𝑔2 ⋯ 𝑌 𝑔𝑔 𝑋 𝑔 Value-added 𝑉𝑎 1 𝑉𝑎 2 ⋯ 𝑉𝑎 𝑔 Total input (𝑋 1 ) ′ (𝑋 2 ) ′ ⋯ (𝑋 𝑔 ) ′ ◼ Consider a world economy with G countries and N sectors
Gross outputs X can be split into intermediate and final products AX+Y=Ⅹ X=BI B=(-A is the( global) Leontief inverse matrix VBp i GNXGN Value added from a source country-sector i used in the production of final goods and services in country-sector
Gross outputs X can be split into intermediate and final products： 𝐴𝑋 + 𝑌 = 𝑋 𝑋 = 𝐵𝑌 𝐵 = (𝐼 − 𝐴) −1 is the (Global) Leontief inverse matrix 𝑽𝑩𝒀 ➢ Value added from a source country-sector i used in the production of final goods and services in country-sector j i GN×GN j
Decomposition of value-added and final goods production based on Leontief insights When n=g=2 buu b,2 bu bi SS b20y200 丿BY b,3 b,3 b, 1 6 bnb2b1b2⊥000y 1v2 6i2 2 v2bi1 1 26232 Decompose GDP by blyr v1612 sector: forward nkage based b,1y 1, y Decompose final goods production by Va source; backward Linkage based
Decomposition of value-added and final goods production based on Leontief insights Decompose GDP by sector; forward linkage based Decompose final goods production by VA source; backward Linkage based When N=G=2 = = r rs s r rs s r rr r r rr r r rs s r rs s r rr r r rr r s ss s s ss s s sr r s sr r s ss s s ss s s sr r s sr r r r s s rs rs rr rr rs rs rr rr ss ss sr sr ss ss sr sr r r s s v b y v b y v b y v b y v b y v b y v b y v b y v b y v b y v b y v b y v b y v b y v b y v b y y y y y b b b b b b b b b b b b b b b b v v v v VBY 2 21 1 2 22 2 2 21 1 2 22 2 1 11 1 1 12 2 1 11 1 1 12 2 2 21 1 2 22 2 2 21 1 2 22 2 1 11 1 1 12 2 1 11 1 1 12 2 2 1 2 1 21 22 21 22 11 12 11 12 21 22 21 22 11 12 11 12 2 1 2 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ˆ
VBY =VLYD VLYF+ VLAF LY+VLAF(BY-LYD (1 )Pure Domestic: VLy, Value added that is domestically produced and consumed (2)Traditional Final Goods Trade: VLYF, Value-added that is embodied in exports/imports of intermediate goods and services (3)Simple GVC: VLA Lr Simple cross country production sharing activities, with only I border crossing. (4) Complex GVC: VLA (BY-LYD ), Complex cross country production sharing activities with at least 2 border crossings
𝑽𝑩𝒀 = 𝑉𝐿𝑌𝐷 + 𝑉𝐿𝑌𝐹 + 𝑉𝐿𝐴 𝐹𝐿𝑌𝐷 + 𝑉𝐿𝐴 𝐹 (𝐵𝑌 − 𝐿𝑌𝐷) (1) Pure Domestic: 𝑉 𝐿𝑌𝐷 , Value added that is domestically produced and consumed. (2) Traditional Final Goods Trade: 𝑉 𝐿𝑌𝐹 , Value-added that is embodied in exports/imports of intermediate goods and services. (3) Simple GVC: 𝑉 𝐿𝐴 𝐹𝐿𝑌𝐷 , Simple cross country production sharing activities, with only 1 border crossing. (4) Complex GVC: 𝑉 𝐿𝐴 𝐹 (𝐵𝑌 − 𝐿𝑌𝐷), Complex cross country production sharing activities, with at least 2 border crossings
vBY=VLYd+VLyF +Vla LYD+VLA (BY-LYDy a Summing up along the row direction Decompose value-added generated from each country-sector pair in terms of where it goes igure la Decomposition of GDP Which types of production and trade are global value chain activities? A country/sector's total Value-added (V) GDP bv industry Forward linkage GVC Participation Ratio: In production of final V GVC In production of final In production of products to domestic market directly(V D) exports directly intermediate exports M-RT) V_GVC sorbed by direct Re-export/re-import importer Complex GVCs Simple GVCs N GVC C)
𝑽𝑩𝒀 = 𝑉𝐿𝑌𝐷 + 𝑉𝐿𝑌𝐹 + 𝑉𝐿𝐴 𝐹𝐿𝑌𝐷 + 𝑉𝐿𝐴 𝐹 (𝐵𝑌 − 𝐿𝑌𝐷) Figure 1a Decomposition of GDP — Which types of production and trade are Global Value Chain activities? Summing up along the row direction: Decompose value-added generated from each country-sector pair in terms of where it goes. Forward Linkage GVC Participation Ratio: 𝑉_𝐺𝑉𝐶 𝑉
vBY=VLYd+VLyF +Vla LYD+VLA (BY-LYDy a Summing up along the column direction Decompose country-sector final goods production in terms of where the value added comes from igure 1b Decomposition final goods production Which part of final goods production and trade belong to gvcs? Production of final goods and services by country/sector(Y) Backward linkage GVC Participation Ratio: Domestic VA in Domestic VA in final Domestic and foreign VA Y GVC domestically used final exports in intermediate imports products(Y D) MY RT) M_ GVC Partner VA in production In production of exported of domestic used products (Y GVC C) Y GVC S
𝑽𝑩𝒀 = 𝑉𝐿𝑌𝐷 + 𝑉𝐿𝑌𝐹 + 𝑉𝐿𝐴 𝐹𝐿𝑌𝐷 + 𝑉𝐿𝐴 𝐹 (𝐵𝑌 − 𝐿𝑌𝐷) Figure 1b Decomposition final goods production — Which part of final goods production and trade belong to GVCs? Summing up along the column direction: Decompose country-sector final goods production in terms of where the value added comes from. Backward Linkage GVC Participation Ratio: 𝑌_𝐺𝑉𝐶 𝑌