The Trade in Value Added (TiVA) database aims to inform trade policy in a number of areas, and to better reflect:
- the significantly higher contribution made by services in global value chains
- the role of imports in export performance
- the true nature of economic interdependencies
- the role of emerging economies in GVCs
- how supply and demand shocks might impact on downstream and upstream production
The figures below, based on the first version of TiVA database (16 January 2013), attempt to illustrate the importance of measuring trade on a value added basis as a complement to the traditional gross basis.
Open and efficient services markets matter
Services comprise about two-thirds of GDP in most developed economies. However, based on gross terms, trade in services typically account for less than one-quarter of total trade. Accounting for the value added by services in the production of goods though, shows that the service sector contributes over 50% of total exports in the United States, the United Kingdom, France, Germany and Italy and nearly one-third in China (Figure 1), with a significant contribution (typically one-third) across all manufactured goods (Figure 2), provided by both foreign and domestic service providers. In France, for example, over half of the domestic value added generated in producing transport equipment originates in the French service sector.
Exports require imports
To improve productivity and remain competitive in a world dominated by GVCs requires access to efficient imports of goods as well as services. Between one-third to half of the total value of exports of transport parts and equipment by most major producers originated abroad in 2009 (Figure 3), reflecting the emergence of regional production hubs. In the US and Japan, the shares were only about one-fifth, reflecting their larger scope to source inputs from domestic providers. This was also the case for Italy, possibly reflecting efficient upstream domestic SME networks. Interestingly, in 2009, Germany exported 25% more than the United States in gross terms but only 5% more in value-added terms. Similar patterns emerge in other sectors. For example, in China and Korea, two of the world's largest exporters of electronic goods in 2009, the foreign content of exports of these products was about 40% (Figure 4). In Mexico, the share was over 60%.
Significant shares of intermediate imports are used to produce exports
In most economies, around one-third of intermediate imports are destined for the export market. Not surprisingly, in general , the smaller the economy the higher the share. However, even in the United States and Japan, which have the lowest such shares amongst OECD countries, these are 15% and 20% respectively at the total economy level, with noticeably higher percentages for some imported products. In Japan for example nearly 40% of all intermediate imports of transport equipment end up in exports.
In other countries, the share of intermediate imports embodied in exports is significantly higher. In Hungary, for example two-thirds of all intermediate imports are destined for the export market after further processing, with the share reaching 90% for electronic intermediate imports. In China, Korea and Mexico around three-quarters of all intermediate imports of electronics are embodied in exports. The TiVA database also reveals that close to 85% of China's intermediate imports of textile products end up in exports.
Intermediate imports often embody a country's own (returned) domestic value added
Imports can also contain value added that originated in the importing country. In the United States for example nearly 5% of the total value of imported intermediate goods reflects US value added (Figure 6). In China the equivalent shares are close to 7%. For electronic goods, Chinese exports contain over 12% of “returned” Chinese domestic value added, and Korean exports contain close to 5% of "returned" Korean domestic value added.
Trade patterns change
Bilateral trade balance positions can change significantly when measured in value added terms. For example, China's bilateral trade surplus with the United States was over USD 40 billion (25%) smaller in value added terms in 2009. This partly reflects the higher share of US value added imports in Chinese final demand (Figure 6) but also the fact that China's exports include a significant share (one-third) of foreign content - the “Factory Asia” phenomenon. For example, significant exports of value added from Korea and Japan pass through China on their way to final consumers, resulting in significantly smaller Chinese trade deficits with these countries but also typically higher Japanese and Korean trade surpluses with other countries. Similarly, Korea's significant trade deficit with Japan in gross terms almost disappears when measured in value added terms.
For example, significant exports of value added from Korea and Japan pass through China on their way to final consumers, resulting in significantly smaller Chinese trade deficits with these countries but also typically higher Japanese and Korean trade surpluses with other countries. Similarly, Korea's significant trade deficit with Japan in gross terms almost disappears when measured in value added terms.
Measuring Trade in Value Added: An OECD-WTO joint initiative