The document discusses the complexities of global value chains (GVCs) where production crosses borders, highlighting that two-thirds of trade occurs within GVCs and emphasizing the misleading nature of gross trade values. It notes that trade costs, affected by infrastructure and regulations, impact participation, and stresses the importance of 'deep' trade agreements for both developing and developed countries. Key recommendations include reducing trade costs, enhancing services trade, and providing support for low-skilled workers in developed nations to address challenges posed by GVC expansion.

2. Expansion of global value chains (GVCs)
complicates reality and analysis
• GVC = production crosses at least one border
• Two-thirds of trade now within GVCs
• Gross value of trade often misleading
• New data on value added of trade 1995-2014

3. “Smile curve” for China’s exports of
electrical and optical equipment, 2009

4. U.S. IT manufacturing: hours and
compensation, 1995-2009

5. Chinese IT manufacturing: hours and
compensation, 1995-2009

6. Developing country participation
• Trade costs -- via poor infrastructure, tariffs,
bureaucracy -- cascade
• Institutions, and neighbors’ institutions matter
• “Deep” trade agreements facilitate GVC
participation

7. Most trade is in goods, not services
82 80 79
18 20 21
1980 1995 2009
Gross Exports of Goods and Services as a share of Total World Gross Exports
Goods Services

8. In value added terms, however, nearly
half of trade now is in services
69
61
57
31
39
43
1980 1995 2009
Value Added of Goods and Services as a share of Value
Added Exports
Goods Services

9. Some take-aways for developing
countries
• Reduce trade costs via infrastructure, tariff
reduction, deregulation
• Open up foreign trade and investment in
services
• Deep trade agreements with more advanced
economies

10. Some take-aways for developed
countries
• Expansion of GVCs put downward pressure on
jobs and wages for low-skilled
• Multinational companies and skilled workers are
the winners
• Adjustment assistance and retraining of workers
• Distributional policies