Identifying hubs and spokes in global supply...
Transcript of Identifying hubs and spokes in global supply...
Identifying hubs and spokes in global supply chains
with redirected
trade in value added
Paul Veenendaal
Arjan Lejour
Hugo Rojas-Romagosa
Outline
• Background and purpose
• Methodology
• global input-output analysis
• focus on trade redirection
• explanation of trading schemes
• Results
• hubs in electronics and other business services
• hub development over time in China, EU12 and other NAFTA
• Some conclusions
CPB Netherlands Bureau for Economic Policy Analysis
Background
• Hype in attention for trade in value added (WTO, World Bank, OECD, etc.)
• Inspiring articles:
- J&N: Johnson, R. C. and Noguera, G. (2012), Accounting for Intermediates: Production Sharing and Trade in Value Added, Journal of International Economics, 86(2):224-236
- KPWW: Koopman, R., Powers,W., Wang, Z. and Wei, S.-J. (2010), Give Credit where Credit is Due: Tracing Value Added in Global Production Chains, NBER Working Paper 16426
• Predecessor of the current paper is
- LRV1: Lejour, A., Rojas-Romagosa, H. and Veenendaal, P. (2012),The Origins of Value in Global Production Chains, study for DG TRADE
• Today I extend in my presentation the analysis of the paper with
- a new concept: factory gate value added exports
- redirection via intermediate exports
- these extensions are available in a draft paper at the GTAP-website
3 Washington DC, April 16 2013
CPB Netherlands Bureau for Economic Policy Analysis
Purpose
• Can we retrieve meaningful information from global input-output tables about the most important hubs and spokes at the level of the industry of end-use?
• Some examples:
- electronics production in China, South-East Asia and East Asia
- motor vehicle assembly in EU12, Mexico, Japan, etc.
- airplane construction in USA and EU15
• We aim to identify at the industry level
- the ‘hubs’ that convert intermediate output imports into exports
- their most important suppliers and customers
- and the regions that do not supply
4
Washington DC, April 16 2013
CPB Netherlands Bureau for Economic Policy Analysis
Approach (1)
• Take the datasets from GTAP for 2001, 2004 and 2007
- these datasets link national input-output tables with bilateral trade statistics
- 57 industries, 84 different countries/regions
• Construct global input-output tables from the datasets
- main proportionality assumption used: all incoming imports at the industry level are allocated to intermediate and final use in proportion to the row of the import matrix of the importer
› hence, for example, German electronics imports from China and German electronics imports from the US are allocated to use categories in Germany in exactly the same proportions
5 Washington DC, April 16 2013
CPB Netherlands Bureau for Economic Policy Analysis
Approach (2)
• Derive suitable indicators that identify the hubs and spokes at the industry level
- we base these on redirected trade in value added: intermediate value added imports that are exported again by the one but last country in the chain
- this country is
› either the final output producer producing for foreign final users
◦ exporting intermediate value added exports via final output exports (type I redirection); focus of the paper
› or the last exporter to the final output producer producing for the home market
◦ exporting intermediate value added imports via intermediate value added exports (type II redirection); extra in my presentation
6 Washington DC, April 16 2013
CPB Netherlands Bureau for Economic Policy Analysis
Structure of the global input output tables
• For a three region world example with regions:
• S is an (industry by industry) matrix of intermediate output deliveries, f a vector of final output deliveries by industry, x a vector of gross outputs by industry and w’ a row vector of value added by industry
r
rr r r r r r r
r
r
r
r
r
r
S S S f f f x
S S S f f f x
S S S f f f x
w w w
x x x
7 Washington DC, April 16 2013
, and r M
CPB Netherlands Bureau for Economic Policy Analysis
Leontief arithmetic (condensed notation)
We summarize the global table with
and define input coefficients for intermediates and value added as
and
Then, using as an index for the global aggregate over regions,
in which B denotes the global Leontief inverse and is global final output use.
S F x
w
x
( , , , ) ( , , , ) / ( , )A r i s j S r i s j x s j ( , ) ( , ) / ( , )v r j w r j x r j
1( )w w wx Ax f I A f Bf
wf
8 Washington DC, April 16 2013
w
CPB Netherlands Bureau for Economic Policy Analysis
Leontief arithmetic: going quadrangular
Defining
- the exports of final output from to as
- the local Leontief inverse of country r as
And using
- the ^ symbol to denote a matrix with a vector on its main diagonal and zeroes elsewhere
- as a toggle which is one if and zero elsewhere
Consider:
gross exports
value added exports
This matrix gives all values added that are required from for the exports of final j-output from to .
Note that we exclude domestic value added for domestic final output production that is used at home.
9 Washington DC, April 16 2013
f
rs r s
ˆ(1 )( )rs rs rs s r sA B I f
1ˆrs r rr rs
1
rr
CPB Netherlands Bureau for Economic Policy Analysis
With these definitions we obtain:
• the well-known result that all value added exports are absorbed in final output
• because the relation of gross exports of final output with value added exports is so clear, we restrict ourselves to analysing intermediate gross and value added trade
and
Washington DC, April 16 2013
10
1 ˆrs
r s
f f
ˆ(1 )rs rs rs sA B f
1ˆrs r rr rs
CPB Netherlands Bureau for Economic Policy Analysis
Then we obtain: the importance of ‘imports in exports’
Intermediate gross exports
Intermediate gross imports
We learn four things from this:
• the VS and VAX-ratio’s are complements
• the aggregate trade balance is the same in gross trade and in value added trade: imports in exports cancel
• they don’t cancel in the bilateral trade balance though: hence the imports in Chinese exports to the USA exceed the imports in US exports to China (and this may be just a volume effect)
• value added imports have passed through the chain but value added exports are just at the beginning of the chain
Washington DC, April 16 2013
11
rs sr rs
s s s
sr sr r sr
s s s
VS
VS
CPB Netherlands Bureau for Economic Policy Analysis
Type I redirection in a triangular trading scheme:
Washington DC, April 16 2013
12
February
7 2013
Trade redirection
r
Indirect exports to
Redirected
imports Absorbed imports
CPB Netherlands Bureau for Economic Policy Analysis
Type I redirection in a quadrangular trading scheme:
Washington DC, April 16 2013
13 February
7 2013
r s
Indirect imports of Direct exports to
Redirected imports Absorbed imports
Indirect exports via
direct trading partner s
CPB Netherlands Bureau for Economic Policy Analysis
Type I redirection in a full trading scheme:
Washington DC, April 16 2013
14
r
Indirect imports of Direct exports to
Redirected imports Absorbed imports
2s3s cs s
Indirect exports through the chain
CPB Netherlands Bureau for Economic Policy Analysis
Type II redirection in a full trading scheme:
Washington DC, April 16 2013
15
Absorbed imports
2 3 c
Imports from Imports from Imports from r 2s 1cs
Redirected type II
imports of
Redirected type I imports
CPB Netherlands Bureau for Economic Policy Analysis
Factory gate exports
Washington DC, April 16 2013
16
Final user
Final producer 1 2 3 1 2 3 1 2 3
Origin Last exporter
1
2
3
1
2
3
1
2
3
Shipments from 1:
Shipments from 2:
Shipments from 3:
3
1 2 3
1
2
CPB Netherlands Bureau for Economic Policy Analysis
Collecting type I and type II redirection from the factory gate exports table
Washington DC, April 16 2013
17
Final user
Final producer 1 2 3 1 2 3 1 2 3
Origin Last exporter
1
2
3
1
2
3
1
2
3
Redirected by 1 of which type II excluding exports
Redirected by 2 by the first and last
Redirected by 3 exporter
1 2 3
1
2
3
CPB Netherlands Bureau for Economic Policy Analysis
Factory gate exports that are not redirected
Washington DC, April 16 2013
18
Final user
Final producer 1 2 3 1 2 3 1 2 3
Origin First and last exporter
1
2
3
1
2
3
1
2
3
3
1 2 3
1
2
CPB Netherlands Bureau for Economic Policy Analysis
Calculating factory gate exports • We had to restrict the size of the global system to 12 sectors and 12
regions/countries to make the calculations feasible
• The decay in the chain was about 6.7
• We chose the cut-off at the 4th position in the chain
• After the cut-off only 0.1% of factory gate exports was still wandering in the chain
• All figures and tables in this presentation are based on the concept of factory gate exports
• The figures are very similar to those in the paper
Washington DC, April 16 2013
19
CPB Netherlands Bureau for Economic Policy Analysis
Composition of global value added exports
Washington DC, April 16 2013
20
2001 2004 2007
Own value added in own final output exports 38 36 33
Factory gate exports 62 64 67
Direct for own final output use 45 45 48
Direct for final output exports (type I) 7 7 7
Redirected for own final output use (type II) 9 10 11
Redirected for final output exports (type I) 2 2 2
Total redirection 17 19 19
Total 100 100 100
CPB Netherlands Bureau for Economic Policy Analysis
Country classification in results
EU15: Old member states
EU12: New member states
OWE: Other western Europe
OEE: Russia and other eastern Europe
IND: India
CHH: China and Hong Kong
EAS: East Asia
SEA: South-East Asia
JPN: Japan
USA: United States of America
ONA: Other Nafta
ROW: Rest of World
22 Washington DC, April 16 2013
CPB Netherlands Bureau for Economic Policy Analysis
Industry classification in results
AGO: Agriculture and raw materials
ENG: Energy
LTM: Low-tech manufacturing
MLM: Medium-low tech manufacturing
CRP: Chemical, rubber and plastic products
MVH: Motor vehicles and parts
OTN: Transport equipment nec
OME: Machinery and equipment nec
ELE: Electronic equipment
TRA: Transport
OBS: Business services
OCS: Other commercial services
OSR: Other services
23 Washington DC, April 16 2013
CPB Netherlands Bureau for Economic Policy Analysis
Type I and Type II redirection as a % of value added exports, 2007
Washington DC, April 16 2013
24
CPB Netherlands Bureau for Economic Policy Analysis
Total redirection of value added for electronics end-use, 2007
25 Washington DC, April 16 2013
EU15
EU12
OWEOEE
China
India
EAS
SEA
Japan
USAONA
ROW
Average
0
5
10
15
20
25
30
35
40
0 10 20 30 40 50 60 70 80 90
GS
FR
V
SFRV
CPB Netherlands Bureau for Economic Policy Analysis
Redirection of domestic value added for electronics, 2007
26 Washington DC, April 16 2013
EU15
EU12OWE
OEE
China
India
EAS
SEA
Japan
USA
ONA
ROW
Average
0
5
10
15
20
0 10 20 30 40 50 60 70
GS
DR
V
SDRV
CPB Netherlands Bureau for Economic Policy Analysis
Origins of redirected foreign value added for electronics end-use,2007
Washington DC, April 16 2013
27
0
5
10
15
20
25
30
35
40
eu15 eu12 owe oee chh ind eas sea jpn usa ona row
GS
FR
V
Redirector
eu15 eu12 owe oee chh ind eas sea jpn usa ona rowValue added from:
CPB Netherlands Bureau for Economic Policy Analysis
Final destinations of redirected value added for electronics, 2007
28 Washington DC, April 16 2013
0
5
10
15
20
25
30
35
40
eu15 eu12 owe oee chh ind eas sea jpn usa ona row
GS
FR
V
Redirector
eu15 eu12 owe oee chh ind eas sea jpn usa ona rowValue added to:
CPB Netherlands Bureau for Economic Policy Analysis
Type I redirection of value added for 0BS, 2007
Washington DC, April 16 2013
29
EU15
EU12
OWE
OEE
ChinaIndia
EAS
SEA
Japan
USA
ONA
ROWAverage
0
5
10
15
20
25
0 5 10 15 20 25 30 35 40
GS
FR
V
SFRV
CPB Netherlands Bureau for Economic Policy Analysis
Type I + type II redirection of value added for OBS, 2007
Washington DC, April 16 2013
30
EU15
EU12
OWE
OEE
China
India
EAS
SEA
Japan
USA
ONA
ROW
Average
0
5
10
15
20
25
0 10 20 30 40 50 60 70 80
GS
FR
V
SFRV
CPB Netherlands Bureau for Economic Policy Analysis
China as a redirector, 2001-2007
Washington DC, April 16 2013
31
2001
2004
ltm
mlm
crp
mvh
otn
ome, 2007
ele
0
5
10
15
20
25
30
35
40
0 10 20 30 40 50 60 70 80 90
% of globally redirected value
added
% of intermediate value added imports
CPB Netherlands Bureau for Economic Policy Analysis
EU12 as a redirector, 2001-2007
Washington DC, April 16 2013
32
ltm
mlm
crp
mvh
otn
ome
ele, 2007
0
2
4
6
8
10
12
14
16
0 10 20 30 40 50 60 70 80
% of globally redirected value
added
% of intermediate value added imports
CPB Netherlands Bureau for Economic Policy Analysis
ONA as a redirector, 2001-2007
Washington DC, April 16 2013
33
2001
2004
ltm mlmcrp
mvh
otn ome, 2007
ele
0
5
10
15
20
25
30
35
40
0 10 20 30 40 50 60 70 80 90
% of globally redirected value
added
% of intermediate value added imports
CPB Netherlands Bureau for Economic Policy Analysis
Factory gate exports: upstream or downstream?
Washington DC, April 16 2013
34
0
10
20
30
40
50
60
70
80
90
100
eu15 eu12 owe oee chh ind eas sea jpn usa ona row wld
%
Type II plus direct exports for final use at home Type I
CPB Netherlands Bureau for Economic Policy Analysis
Value added composition of gross exports
Washington DC, April 16 2013
35
0
5
10
15
20
25
eu15 eu12 owe oee chh ind eas sea jpn usa ona row
%
eu15 eu12 owe oee chh ind eas sea jpn usa ona row
CPB Netherlands Bureau for Economic Policy Analysis
Some conclusions on the analysis
• Our analysis yields meaningful results on vertical specialisation at the industry level that are robust over time and seem to make sense
• We contribute to the literature with
- the concept of trade redirection by the last but one country in the chain
- the concept of factory gate exports, which seems useful in
› determining the interrelations in global supply chains (hubs and spokes)
› characterizing exports as relatively up- or downstream
› measuring the value added content of trade
• Type II redirection is still cumbersome to compute
• Our approach is just to measure what is happening in a meaningful way in the hope that this will be useful in testing the predictions of models that aim to explain what is happening in a meaningful way
Washington DC, April 16 2013
36