Published on The Trade Post

Searching for New, Better Data to Measure GVCs

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Statistical and international development agencies are working together to try to improve and develop novel ways of measuring countries’ participation in global value chains (GVCs) in the hopes that better data equals better development outcomes.

More and better data capturing the dynamics of GVCs are needed to help governments put in place appropriate policies that support GVC integration and boost employment and productivity in agriculture, manufacturing, and services, while also improving worker well-being, social cohesion, and environmental sustainability.
Such policies require sound analytics and data to help governments and their partners develop concrete economy-wide and sector-specific solutions.

Traditionally, trade was measured as gross exports and imports. These measures make most sense in a world of classic trade which involves goods made 100 percent in one country and sold in another. Measures of GVC trade quantify deviations from that classic trade concept—essentially, how much of a country’s exports consist of value that was added in another country.
Value added data changes the way we see trade relationships. The famous iPhone case study by Xing and Detert (2010), for example, shows that in 2007, China ran a USD 1.9 billion surplus with the United States if measured in gross export terms. In value added terms, however, China ran a trade deficit of USD -48.1 million, because a large share of Chinese exports included US value added. 

The desire to more accurately understand global trade relationships has prompted several organizations in recent years to produce inter-country input-output (I-O) tables that capture the sources and destinations of value added by country and sector:

Although value-added trade data provide essential information about GVCs, the data are subject to restrictive assumptions regarding a country’s technology. One of the reasons these biases exist is because I-O tables are not harmonized across national sources. Differences in an I-O table between Country A and Country B produce different values for the same type of trade flow between the two countries.

In addition, GVC data are currently classified into sectors rather than business functions along the value chain, which range from research and development (R&D), design, input sourcing, processing, marketing, distribution, to customer support.

Using sectoral data masks which types of value-added activities a country truly specializes in. For example, an electronics firm’s activities are often classified as manufacturing, even though they contain a large fraction of services.

The United Nations Statistics Division—together with over 20 national statistical offices, the Asian Development Bank, Eurostat, the International Monetary Fund, OECD, the World Bank Group, WTO, and academic researchers—recently held its second Expert Group meeting on International Trade and Economic Globalization Statistics to create a system of extended national accounts and integrated business statistics that takes into account GVCs.
This is a tremendous step forward in producing harmonized, inter-country input-output tables.

Another groundbreaking improvement deals with classifying GVC activities into business functions which embrace the full range of a firm’s value adding core and support activities in a supply chain.

A forthcoming how-to handbook will guide national statistical authorities in developing systems that capture accurate, timely, and relevant data on GVCs, and illustrate the resulting interdependencies across countries.

Going forward, important questions remain to be solved for the statistical community. For instance, how do statistical frameworks account for GVCs (such as in apparel) where lead firms don’t actually own factories, but rely on sub-contractors around the globe? What if most of a company’s value added is in its services—like R&D and design—but it still produces goods? Is this a manufacturing or services company?

As one of the members of the Expert Group, the World Bank Group has been sharing its expertise on how to make GVCs work for developmen t. Our work in this area focuses on offering advisory services—analytical tools, strategies, and policy options—as well as lending and investment support to our client countries. It includes providing customized country and sector diagnostics and guiding policymakers in identifying the key objectives of GVC participation and in selecting suitable strategies to achieve them.

Because our work relies on reliable and comparable GVC measures –-both at the macro and micro level— the availability of more precise measures, on globalization and trade, will help inform our work and the services we provide to our client countries and firms. It will also play a decisive role not only for trade policy, but for a wider set of development polices ranging across investment and finance, labor and skills, and the environment.

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