6. Participation in global value chains

Did you know?

OECD countries remain firmly integrated in global production systems with foreign content of exports ranging from about 15% in Japan and the United States to over 40% in smaller EU countries.

Integration of countries into global value chains (GVCs) can be measured by tracking the origins of value added embodied in exports. Estimates of foreign value added in exports highlight the importance of imports for export performance, while domestic value added embodied in the exports of partner countries shows how industries within a country reach consumers abroad even when no direct trading relationship exists.

For most countries, a large share of foreign value added in exports originates from the same region, reflecting the importance of geographic proximity and regional trade agreements. Between 1995 and 2014, many countries experienced notable increases in the share of foreign value added in exports as global value chains became well established. The highest increases were evident in Japan, India, Korea, Poland and Turkey.

For many countries, the share of domestic value added embodied in partners’ exports (“forward linkages in GVCs”) increased significantly between 1995 and 2014, particularly for countries such as Australia, Brazil, Canada, Chile, Norway and South Africa, reflecting growing demand for mineral products in global value chains.

Analysis of the sectoral origins of domestic value added in gross exports reveals the important contribution of domestic services which, in 2014, accounted for more than half the value-added content of total exports in countries such as France, Israel, Switzerland and the United Kingdom. While direct exports of service products have risen in recent years, a significant share of domestic service activity continues to be driven by foreign demand for exports of raw materials and manufactured goods. Domestic manufacturing activities have continued to be a major source of value added in total exports (over 30%) for Chile, China, Germany, Japan and Korea.

Definitions

The Trade in Value Added (TiVA) database provides indicators on the domestic and foreign origins of value added embodied in exports and in final demand. They are derived from OECD’s Inter-Country Input-Output (ICIO) database which provides estimates of the flows of goods and services between 63 countries and 34 industries from 1995 to 2011. Tracing global flows of value added provides insights for the analysis of GVCs that are not always evident from conventional trade statistics. Estimates for 2014 are projections based on the latest ICIO extended using more recent time series drawn from annual national accounts and merchandise trade statistics.

Measurability

Estimates of foreign value added content of exports are often referred to as backward linkages in GVCs, while domestic value added content in partner countries’ exports (calculated as the sum of domestic value added in exports of intermediates that are then embodied in other countries’ exports) are referred to as forward linkages. Both are used to provide an indication of GVC participation and, given the different perspectives (foreign versus domestic value added), are best analysed separately.

Changes in participation in GVCs not only reflect changes in specialisation towards activities at the beginning or end of value chains, but also changes in commodity prices. For example, a surge in oil prices could result in an increase in the import content of exports for many countries. The same domestic value added can be included in many other countries’ exports, if it moves along multi-country production chains. Thus, care should be taken when interpreting measures of GVC participation over time.

Non-resident final expenditures (e.g. by tourists) are allocated to the consumer’s country of residence (i.e. treated as exports of the country in which the goods and services are purchased).