Participation in GVCs through capital goods and services

Capital goods (such as machines, equipment or infrastructure) and services (such as R&D, databases or software) are central to modern production systems. Yet, in conventional frameworks for the analysis of trade in value added (TiVA), capital is treated as an exogenous component of final demand and does not contribute to value added flows across countries. This simplification can lead to a distorted picture of international competitiveness and interdependence, as it fails to capture a fundamental channel through which countries participate in global value chains. This report develops an analytical framework to endogenise capital within inter-country input-output models and computes capital-augmented TiVA indicators. On average, the GVC participation of OECD Member countries is 11 percentage points higher when accounting for the role of capital inputs. The services content of manufacturing exports is also 9 percentage points higher, as intangible assets play an increasing role in manufacturing competitiveness. Finally, new measures of foreign capital exposure reveal hidden interdependencies across countries through capital.