Alessandro Borin, Michele Mancini, Daria Taglioni, Countries and Sector in GVC

Countries and Sectors in GVCs
Alessandro Borin, Michele Mancini, Daria Taglioni

August 2021
Borin, Mancini and Taglioni Countries and Sectors in GVCs August 2021 1 / 43
Measuring GVC participation
Since the 1970s production of goods and services is increasingly

globalized, but how to measure GVC participation is still the object of
academic debate.
• Fully fledged measurement of GVC participation requires data that
trace firm-to-firm transactions within and across countries.

academic debate.
• Only one country (Belgium) allows to track international and
domestic firm-to-firm transactions in a consistent and complete way
(Bems and Kikkawa, JIE 2021)

academic debate.
• Only one country (Belgium) allows to track international and
domestic firm-to-firm transactions in a consistent and complete way
(Bems and Kikkawa, JIE 2021)
• For most other countries, a macro approach that combines national
input-output tables with customs data is the only source of
information (TiVA, WIOD, EORA, ADB MRIO)
Measuring GVC participation using ICIO data
Two types of questions can be addressed with MRIO (or ICIO) data:
• To what extent do countries/sectors participate in GVC? i.e. what
part of trade/output/GDP is involved in GVC?
• To what extent do countries/sectors participate in GVC? i.e. what
part of trade/output/GDP is involved in GVC?
• How do country/sectors participate in GVC? i.e. are they mainly
suppliers of inputs or users? what is a country/sector relative
position within the chain?
Measuring GVCs participation using ICIO data
• Following Hummels et al (JIE 2001), a sufficient condition for a

trade flow to be considered GVC-related is to cross two borders:
given the exports of sector n from country s to country r , items that
cross at least two borders are GVCsr .

• Within GVCsr usually two modes of participation are identified:
backward and forward integration.

• Within GVCsr usually two modes of participation are identified:
backward and forward integration.
• References: Hummels et al (2001); Borin and Mancini (2015); Wang
et al. (2016); Borin and Mancini (2019); Antras and Chor (2021)
This paper
• Identifies two sources of mis-measurement of GVC participation.
This paper

• Proposes new ways of characterizing GVC participation that corrects
for these biases.
This paper

for these biases.
• Partitioning participation in three (and not two) dimensions.
This paper

for these biases.
• Tracing GVC participation within output (more comprehensive than
within trade).
This paper

for these biases.
• Tracing GVC participation within output (more comprehensive than
within trade).
• Constructs such measures for all major ICIO databases: data are
available on the WITS website.
The paper in a nutshell
Intermediate mode is 61% of the total GVC-output at the world-level

(>80% in some sectors, e.g. basic metals).
Country-sector distribution of different modes of participation as a share of total GVC
Mis-measurements in GVCs
Bias 1: GVC backward vs forward at the global level
GVC Backward and Forward Participation at the global level (share of total
trade)
Source: own elaboration based on WIOD.
Bias 1: GVC backward participation is larger than forward par-
ticipation by construction
Table 1: Illustrative example: the global value chain of hypothetical product P
What is produced? Imports Sales Exports DVA Consumption


Country 1 Intermediate good N1 0 50 50 50 0

Country 2 Intermediate good S1 50 80 80 30 0

Country 3 Final product P 80 100 100 20 0

Country 3 Final product P 80 100 100 20 0
Country 4 No production 100 0 0 0 100
GVC backward participation is larger than forward participation
by construction
Table 2: Decomposition of Export Flows
Imports Sales Exports DVA Export Decomposition:

non-GVC GVC-related
Forward Backward
Country 1 0 50 50 50 0 50 0
Country 2 50 80 80 30 0 30 50
Country 3 80 100 100 20 20 0 80
Country 4 100 0 0 0 0 0 0
Total 230 230 230 100 20 80 130
Our proposed solution to bias 1: three GVC participation
modes, not two
The current way of measuring participation mis-characterizes sectors’ and

countries’ engagement in GVCs.
modes, not two

We propose instead to partition participation in three distinct modes of
participation:
GVCsr = GVCPureForwsr + GVCTwoSidedsr + GVCPureBacksr
modes, not two

participation:
• Pure forward: encompasses the activities at the origin of the chain,

i.e. producing raw inputs to be used in GVC (close to the origin).
modes, not two

participation:

• Intermediate or two-sided: encompasses all activities that use inputs
to sell intermediate goods (not sold to the final market).
modes, not two

participation:

• Intermediate or two-sided: encompasses all activities that use inputs
to sell intermediate goods (not sold to the final market).
• Pure backward: encompasses the activities at the end of the chain,
i.e. using inputs to sell products to the final market.
Evidence of the new break-down
GVC-Trade by participation modes (share of total trade)
• Two-sided integration around 17% of total GVC-trade,

and growing over time.
Mis-measurements at the level of individual sectors and coun-
tries can be even more severe
• Global level: GVC backward is higher than forward (60% vs 40%).
• All manufacturing sectors more backward integrated.
• 2/3 of countries more backward integrated in manufacturing.
Mis-measurements at the level of individual sectors and coun-
tries can be even more severe
• Global level: GVC backward is higher than forward (60% vs 40%).

Pure backward integration ≡ Pure forward integration.
• All manufacturing sectors more backward integrated.
Basic and fabricated metals, chemicals, wood, more pure forward.
• 2/3 of countries more backward integrated in manufacturing.
1/2 of countries more backward integrated in manufacturing.
Evidence of mismeasurement in basic metals
GVC-Trade in Basic Metals by participation modes (share of total GVC trade)

100.0
90.0
77.2
80.0 72.5
70.0
60.0
50.0 45.2
39.9
40.0 32.6 32.0
30.0
20.0
10.0
0.0
Backward (standard definition) Pure Backward Two‐sided
Source: Our elaborations on data from ADB MRIO 2019 data.
Bias 2: Neglecting GVC-Output - Services wrongly appear
marginally integrated in GVCs
GVC-Trade (as percentage of total GVC-Output (as percentage of total

output) output)
Source: Our elaborations on data from EORA and ADB MRIO.
Bias 2: Neglecting GVC-Output - Sectors/countries with low
exports but entirely GVC-related will result as highly integrated,
even if their activity is mostly non-trade related
Figure 1: Bivariate density plot of GVC Bivariate density plot of GVC Output
Output and GVC trade, manufacturing and GVC trade, services)
Bias 2: Neglecting GVC-Output
Figure 2: Ranking GVC Output vs Ranking GVC Output vs GVC trade,

GVC trade, manufacturing services)
Remedy to Bias 2: tracing GVCs in output
Our remedy to Bias 2 is to trace GVC participation in the output of

countries and sectors.

• Extending GVC participation beyond trade.


• Taking into account sectors/firms not directly engaged in exporting
activities but still involved in global supply networks.


• GVC-output encompasses the GVC activities traced in value-added
and final goods, but also in all the exchanges of inputs within the
intermediates stages of production.


• Three modes of participation: pure forward (GVC-value-added),
pure backward (GVC-final goods), two-sided.
Measuring GVCs
A general definition of GVCs
A general definition of what is considered GVC-related in the

Inter-Country Input-Output framework: goods and services crossing more
than one border along the production process (Hummels et al. 2001;
Borin and Mancini 2015, 2019, Antràs and Chor, 2021).
How to make this definition operational?
• Data, i.e. Inter-Country Input-Output tables

• Appropriate accounting framework
Inter-Country Input Output table
A standard ICIO table
Use of intermediate products and factors

C
Delivery (supply) of intermediates and final goods
ICIO tables sources (all available on WITS)
• World Input-Output Database

• OECD Trade in Value-Added
• EORA
• ADB-MRIO
Inter-Country Input Output table
A closer look to a (portion of a) WIOD table
GVC-related trade
GVC-related trade (from Borin Mancini, 2015, 2019)
Which part of trade is NOT involved in GVC, i.e. crosses just one
border?
• Domestic Value-added of country s exported by each sector n and

absorbed directly by the importer r :
V V
DAVAXsr = Vs Lss Ysr + Vs Lss Asr Lrr Yrr
border?

V V
• GVC-related trade defined as the value of production that cross

more than one border:
GVCsr = Esr − DAVAXsr
border?

V V
• GVC-related trade defined as the value of production that cross

more than one border:
G G
X X
GVCs = Esr − DAVAXsr
r 6=s r 6=s
DAVAX with other accounting frameworks
Koopman et al. (2014) and Wang et al. (2013) frameworks are not able
to trace exporter-importer linkages; cannot separate the DVA absorbed in
the first destination or re-exported to other countries:
G G
X X
DAVAXs = Vs Lss Ysr + Vs Lss Asr Lrr Yrr
r 6=s r 6=s
G G
X X
r 6=s r 6=s
• Koopman et al. (2014):
G G
X X
Vs Bss Ysr + Vs Bsr Yrr
r 6=s r 6=s
G G
X X
r 6=s r 6=s
• Koopman et al. (2014):
G G
X X
Vs Bss Ysr + Vs Bsr Yrr
r 6=s r 6=s
• Wang et al. (2013):
G G
X X
Vs Bss Ysr + Vs Lss Asr Brr Yrr
r 6=s r 6=s
Comparison with other GVC-trade proxies
GVC-related trade vs other proxies used in the literature
See also Antràs and Chor, 2021.
GVC-trade participation modes
Given a Nx 1 vector of exports from country s to r , Esr , the level of

GVC-trade at the sectoral level is:
Three modes of participation:
GVCsr = GVCPureForwsr + GVCPureBacksr + GVCTwoSidedsr
Pure Forward GVC-trade
Value-added generated within the domestic chains exported for the first
time by sector n, and then re-exported by the direct importer (i.e. not
directly absorbed by the importing country)
V
GVCPureForwsr = Vs Lss Esr − DAVAXsr
Origin of the chain: first exporting sector
n
Intermediates
Pure Backward GVC-trade
Imported inputs bought directly from abroad or indirectly through

domestic chains, exported by sector n to the final market, as
intermediates or final goods
G
X V
GVCPureBacksr = uN Ats Lss (Ysr + Asr Lrr Yrr )

t6=s
End of the chain: last exporting sector
Final market
n
Intermediates + Final goods
Two-sided GVC-trade
Imported inputs bought directly from abroad or indirectly through

domestic chains, exported by sector n to and further re-exported by the
importing partner
 
G
X V
G
X
GVCTwoSidedsr = uN Ats Lss Asr Lrr Erj 
t6=s j6=r
Intermediate position: the item is imported, processed, exported and it will re-export by other
countries/sectors
n
Intermediates
GVC-output
GVC-output

GVC-output

GVC-output

• Three modes of participation: pure forward (GVC-value-added),
pure backward (GVC-final goods), two-sided.
GVC-output
GVC-output (GVCXs ) definition: given the output of sector n in country

s, items that cross at least two borders.
Total output of a specific sector is made of i) imported intermediates, ii)

domestic intermediates and iii) value added:
G
X V
V V
PG
Xs = Vj Ljj k6=j Ajk Bks Xs + Vs Lss Ass Xs + Vs Xs
j
we trace in each one of the terms above the share that is related to GVC
activities, i.e. that crosses at least two borders.
Pure Forward GVC-output
• Value-added produced by sector n sold directly abroad or indirectly

trough domestic chains; then, exported by the partner country.
V
G
X
GVCPureForwsX = Vs (Asr Xexp
r + Ass Lss Asr Xexp
r ).
r 6=s
PG
where Xexp
r = Lrr k6=r Erk
Pure Forward GVC-output
• Value-added produced by sector n sold directly abroad or indirectly

trough domestic chains; then, exported by the partner country.
V
G
X
GVCPureForwsX = Vs (Asr Xexp
r ).
r 6=s
PG
where Xexp
r = Lrr k6=r Erk
GVC pure forward participation measured in output is equal to
VA
GVC-related value-added,
h i.e. GVC =
V
PG V
PG s PG i
Vs j,k Bsj Yjk − Vs Lss Yss + r 6=s Ysr + r 6=s Asr Lrr Yrr
Pure-forward GVC-output
Origin of the chain: sector of origin of the value-added
n
Intermediates
Pure Backward GVC-output
• Imported inputs bought by n directly from abroad or indirectly

through domestic chains and embedded in final goods production
sold to domestic consumers – if inputs crossed more than 1 border
before – or abroad – if inputs crossed only 1 border
G
X V G
X G
X V
PG
GVCPureBacksX = Vj Ljj k6=j Ajk Bks Ysz − Vj Ljj Ajs Lss Yss
j z j6=s
Pure Backward GVC-output
• Imported inputs bought by n directly from abroad or indirectly

through domestic chains and embedded in final goods production
sold to domestic consumers – if inputs crossed more than 1 border
before – or abroad – if inputs crossed only 1 border
G
X V G
X G
X V
PG
GVCPureBacksX = Vj Ljj k6=j Ajk Bks Ysz − Vj Ljj Ajs Lss Yss
j z j6=s
GVC pure backward participation measured in output is equal to

GVC in final goods, i.e. V V
PG PG PG
GVCYs = z Ysz − j6=s Vj Ljj Ajs Lss Yss − Vs Lss z Ysz
Pure-backward GVC-output
End of the chain: sector producing the final good (for the domestic market)
Final market
m Final
n
goods
Pure-backward GVC-output
End of the chain: sector producing the final good (for foreign markets)
Final market
m Final
n
goods
Two-sided GVC-output
Two components: i) domestically produced inputs

(GVCTwoSidedsDomInp ); ii) imported inputs (GVCTwoSided ImpInp )
Two components: i) domestically produced inputs

(GVCTwoSidedsDomInp ); ii) imported inputs (GVCTwoSided ImpInp )
i) Domestic inputs bought by n within domestic chains and sold directly
abroad or indirectly trough domestic chains; then re-exported.
V
G
X
GVCTwoSidedsDomInp = Vs Lss Ass (Asr Xexp
r )
r 6=s
Intermediate position: sector buying domestic inputs and selling intermediates to other sectors.
m k
n
Intermediates
v j
ii) Imported inputs bought directly from abroad or indirectly trough

domestic chains by n, and sold directly abroad as inputs or indirectly
trough domestic chains:
G
X V
PG
GVCTwoSidedsImpInp = Vj Ljj k6=j Ajk Bks Xs
j
G
X V
− Vj Ljj Ajs Lss Ass Lss Yss − GVCPureBacksX

j6=s
Intermediate position: sector buying foreign inputs and selling intermediates to other sectors.
m k
n
Intermediates
v j
Relative participation in GVCs
Relative participation in GVC-trade
At the global level, the following holds true:
G
X G
X
uN GVCPureBacksr = uN GVCPureForwsr .
s,r 6=s s,r 6=s
We can compute (at any level of aggregation) a measure of forwardness

bounded between -1 and 1 and equal to 0 at the world level. At the
exporting country-exporting sector-importing country level, we have:
Fsr = (GVCPureForwsr − GVCPureBacksr ) GVCsr .
Relative participation and relative position
A bridge between GVC participation and position

Country-level forwardness vs upstreamness/downstreamness.
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
0.6 0.8 1.0 1.2 1.4 1.6 1.8
Relative participation in GVC-output
At the global level, we have:
G
X G
X
uN GVCPureForwsX = uN GVCPureBacksX . (1)
s s
We compute (at any level of aggregation) a measure of forwardness

bounded between -1 and 1 and equal to 0 at the world level. At the
country-sector level, we have:
FXs = GVCPureForwsX − GVCPureBacksX GVCXs .

(2)
Relative participation and relative position
A bridge between GVC participation and position

Country-level forwardness vs upstreamness/downstreamness.
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0
0.6 0.8 1.0 1.2 1.4 1.6 1.8
Conclusions
We address two important limitations in measuring GVCs at the country

and sector level:
• Countries and sectors are systematically more backward integrated

than forward: .
• Sectors indirectly engaged in GVC activities (non-exporting) are
overlooked by standard measures:
Conclusions

and sector level:

than forward: a new breakdown of GVC participation modes.
overlooked by standard measures: trace GVC activities within the
output of a sector.
Conclusions

and sector level:

than forward: a new breakdown of GVC participation modes.
overlooked by standard measures: trace GVC activities within the
output of a sector.
New GVC measures computed on the most used ICIO databases (WIOD,
OECD-TiVA, EORA, ADB MRIO) are available on the WITS website.
Properties of GVC-trade indicators
• GVCPureBacksr + GVCTwoSidedsr = VSs (i.e. the import content

of exports as defined by Hummels et al. 2001). It is also equal to
GVCBackwardsr in Borin and Mancini (2017, 2019) and Stata
package icio .

package icio .
• GVCPureForws is equal to GVCForwardsr in Borin and Mancini

(2017, 2019) and Stata package icio.

package icio .

• GVCPureForws differs from VS1s as defined by Koompan et al.

PG
(2014) and reported by Aslam et al. (2017) (i.e. r 6=s Vs Bsr Er ∗ )
which is not necessary a portion of country s exports.

package icio .

• GVCPureForws differs from VS1s as defined by Koompan et al.

PG
(2014) and reported by Aslam et al. (2017) (i.e. r 6=s Vs Bsr Er ∗ )
which is not necessary a portion of country s exports.
• At the global level, the following holds true:
G
X G
X
uN GVCPureBacksr = uN GVCPureForwsr .
s,r 6=s s,r 6=s

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Alessandro Borin, Michele Mancini, Daria Taglioni, Countries and Sector in GVC

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Countries and Sectors in GVCs

Alessandro Borin, Michele Mancini, Daria Taglioni

Since the 1970s production of goods and services is increasingly

Since the 1970s production of goods and services is increasingly

Since the 1970s production of goods and services is increasingly

• Following Hummels et al (JIE 2001), a sufficient condition for a

• Following Hummels et al (JIE 2001), a sufficient condition for a

• Following Hummels et al (JIE 2001), a sufficient condition for a

• Identifies two sources of mis-measurement of GVC participation.

• Identifies two sources of mis-measurement of GVC participation.

• Identifies two sources of mis-measurement of GVC participation.

• Identifies two sources of mis-measurement of GVC participation.

• Identifies two sources of mis-measurement of GVC participation.

Intermediate mode is 61% of the total GVC-output at the world-level

Source: own elaboration based on WIOD.

Table 1: Illustrative example: the global value chain of hypothetical product P

What is produced? Imports Sales Exports DVA Consumption

Table 1: Illustrative example: the global value chain of hypothetical product P

What is produced? Imports Sales Exports DVA Consumption

Table 1: Illustrative example: the global value chain of hypothetical product P

What is produced? Imports Sales Exports DVA Consumption

Table 1: Illustrative example: the global value chain of hypothetical product P

What is produced? Imports Sales Exports DVA Consumption

Table 1: Illustrative example: the global value chain of hypothetical product P

What is produced? Imports Sales Exports DVA Consumption

Table 2: Decomposition of Export Flows

Imports Sales Exports DVA Export Decomposition:

The current way of measuring participation mis-characterizes sectors’ and

The current way of measuring participation mis-characterizes sectors’ and

GVCsr = GVCPureForwsr + GVCTwoSidedsr + GVCPureBacksr

The current way of measuring participation mis-characterizes sectors’ and

GVCsr = GVCPureForwsr + GVCTwoSidedsr + GVCPureBacksr

• Pure forward: encompasses the activities at the origin of the chain,

The current way of measuring participation mis-characterizes sectors’ and

GVCsr = GVCPureForwsr + GVCTwoSidedsr + GVCPureBacksr

• Pure forward: encompasses the activities at the origin of the chain,

The current way of measuring participation mis-characterizes sectors’ and

GVCsr = GVCPureForwsr + GVCTwoSidedsr + GVCPureBacksr

• Pure forward: encompasses the activities at the origin of the chain,

GVC-Trade by participation modes (share of total trade)

• Two-sided integration around 17% of total GVC-trade,

• Global level: GVC backward is higher than forward (60% vs 40%).

• All manufacturing sectors more backward integrated.

• 2/3 of countries more backward integrated in manufacturing.

• Global level: GVC backward is higher than forward (60% vs 40%).

GVC-Trade in Basic Metals by participation modes (share of total GVC trade)

Backward (standard definition) Pure Backward Two‐sided

Source: Our elaborations on data from ADB MRIO 2019 data.

GVC-Trade (as percentage of total GVC-Output (as percentage of total

Source: Our elaborations on data from EORA and ADB MRIO.

Source: Our elaborations on data from EORA and ADB MRIO.

Figure 2: Ranking GVC Output vs Ranking GVC Output vs GVC trade,

Source: Our elaborations on data from EORA and ADB MRIO.

Our remedy to Bias 2 is to trace GVC participation in the output of

Our remedy to Bias 2 is to trace GVC participation in the output of

• Extending GVC participation beyond trade.

Our remedy to Bias 2 is to trace GVC participation in the output of

• Extending GVC participation beyond trade.

Our remedy to Bias 2 is to trace GVC participation in the output of

• Extending GVC participation beyond trade.

Our remedy to Bias 2 is to trace GVC participation in the output of

• Extending GVC participation beyond trade.

A general definition of what is considered GVC-related in the