Session 4 c presentation for oecd and costa rica tiva papers
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This document summarizes a presentation on measuring trade in value added using global input-output tables. It discusses how traditional trade measures can overstate imports and exports by attributing the full value of goods to the immediate trading partner. Trade in value added (TiVA) measures aim to attribute value added to the country of origin. The document outlines how TiVA is measured using macro and micro approaches, and the OECD-WTO inter-country input-output (ICIO) table methodology. It also summarizes a case study on integrating Costa Rica into the ICIO and measuring its participation in global value chains.
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Session 4 c presentation for oecd and costa rica tiva papers
- 1. www.bea.gov Trade in Value Added, Jobs and Investment Authors: Nadim Ahmad and Jennifer Ribarsky (OECD) Discussant: Dylan G. Rassier (BEA) Presentation Prepared for the IARIW 33rd General Conference Session 4C: Global Production: Measurement, Causes and Consequences I Tuesday, August 26, Afternoon Using the Input-Output Approach to Measure Participation in GVCs: The Case of Costa Rica Authors: David Bullón, Tayutic Mena, Bo Meng, Natalia Sánchez, Henry Vargas
- 2. www.bea.gov 2 Globalization and Measurement of Trade ▪ Traditional Trade Measures Based on gross cross-border flows of goods and services May lead to inaccurate inferences on the role of RoW Artificially inflated measures of imports and exports Full value of product is attributed to immediate trading partner More relevant for national production arrangements ▪ Trade in Value-Added (TiVA) Measures Based on cross-border flows of value-added generated in production Designed to capture the role of RoW Removes domestic content of imports and foreign content of exports Value-added is attributed to its source country More relevant for global production arrangements
- 3. www.bea.gov 3 Measuring TiVA ▪ Micro Approach Based on case studies for specific products (e.g., Apple iPod) Cannot be done for all products Only identifies country of the first link in a GVC Not practical for macroeconomic analysis ▪ Macro Approach Based on international input-output tables (IIOTs) Include national IO tables and trade statistics Require valuation conversions and symmetric trade flow adjustments OECD-WTO inter-country input-output (ICIO) table uses official statistical sources and will be updated annually Costa Rica is currently excluded from ICIO but recently integrated its national IO table into an IIOT
- 4. www.bea.gov 4 Summary IIOT Country A Country B Final Demand Sector 1 Sector 2 Sector 1 Sector 2 Country A Country B Country A Sector 1: Goods Z11 AA Z12 AA Z11 AB Z12 AB F1 AA F1 AB Sector 2: Services Z21 AA Z22 AA Z21 AB Z22 AB F2 AA F2 AB Country B Sector 1: Goods Z11 BA Z12 BA Z11 BB Z12 BB F1 BA F1 BB Sector 2: Services Z21 BA Z22 BA Z21 BB Z22 BB F2 BA F2 BB Tax less subsidy on products NTZ1 A NTZ2 A NTZ1 B NTZ2 B NTFA NTFB International trade margin and insurance TIZ1 A TIZ2 A TIZ1 B TIZ2 B TIFA TIFB Value-Added Labor compensation VL1 A VL2 A VL1 B VL2 B Operating surplus VO1 A VO2 A VO1 B VO2 B Tax less subsidy on production VT1 A VT2 A VT1 B VT2 B Output X1 A X2 A X1 B X2 B
- 5. www.bea.gov 5 OECD-WTO ICIO for TiVA ▪ Coverage IO tables for 57 economies and 37 industries Bilateral trade flows for 37 industries (aggregated to 18) 1995, 2000, 2005, 2008, 2009? ▪ Core Source Data OECD harmonized IO tables on domestic transactions OECD supplemental tables on imports by user ▪ Bilateral Trade Flows Goods Proportionality assumption may not reflect accurate uses of imports BTDIxE improves on the proportionality assumption Services Persistently weak data Econometric models are used to estimate missing flows
- 6. www.bea.gov 6 Improving ICIO for TiVA ▪ Heterogeneous Production Global production arrangements tend to be heterogeneous Higher foreign content ratios for firms engaged in global production Generates distortions in technical coefficients Remedied by separate information on exporting firms ▪ Key Areas of Focus for Improvements Trade by Enterprise Characteristics (TEC) project Relatively few firms export Exporting firms are relatively large Foreign owned firms are relatively import and export intensive Coverage of countries RoW countries have a limited impact on TiVA results Developing countries have been left out but their inclusion is important New data for existing countries in ICIO
- 7. www.bea.gov 7 MNEs and TiVA ▪ Components of Value-Added Compensation accrues to local factors Operating surplus accrues to local and “shared” factors ▪ Structuring of MNEs Some affiliates exist for purposes other than production TiVA measures may include value-added generated by domestic affiliates of foreign firms Operating surplus generated by domestic affiliates of foreign firms may leave the domestic economy ▪ Proposed Solution Breakdown by domestic-/foreign-owned resident firms Include information on primary income flows by type Treat income flows as services produced by foreign firms
- 8. www.bea.gov 8 The Case of Costa Rica ▪ Integration into WIOD Costa Rica is not currently included in any IIOT Next release of OECD-WTO TiVA will include Costa Rica Recent work at COMEX integrates Costa Rica into WIOD ▪ Compatibility of Costa Rica with WIOD Fewer countries implies fewer assumptions about technology Reference year in WIOD was 2009 and for Costa Rica was 2011 Countries in WIOD are close trading partners with Costa Rica M0re product and industry detail in WIOD ▪ Integration Methodology Adjustments to incorporate national IO table into WIOD Details in Bullón et al. (forthcoming)
- 9. www.bea.gov 9 The Case of Costa Rica Partner Shares of Exports Partner Gross Exports Value-Added Exports Rest of World 41.6% 38.5% United States 26.8% 28.2% Western Europe 15.8% 17.1% China 6.1% 5.4% Mexico 4.1% 3.1% Canada 2.3% 2.7% Rest of Europe 1.7% 2.5% Japan 0.9% 1.5% Brazil 0.9% 1.0% Total 100.0% 100.0% Partner Shares of Imports Partner Gross Imports Value-Added Imports United States 39.3% 34.9% Rest of World 29.6% 28.6% Western Europe 8.0% 10.6% China 7.0% 8.0% Mexico 8.2% 6.7% Japan 2.5% 4.0% Rest of Europe 1.9% 2.7% Brazil 2.5% 2.5% Canada 1.1% 2.0% Total 100.0% 100.0%
- 10. www.bea.gov 10 The Case of Costa Rica
- 11. www.bea.gov 11 The Case of Costa Rica
- 12. www.bea.gov 12 The Case of Costa Rica
- 13. www.bea.gov 13 General Comments ▪ Insights from Supplemental TiVA Measures Emphasize a country’s place in GVCs Reveal distortions in gross bilateral trade measures Yield more precise revealed comparative advantage Policy, Policy, Policy! ▪ Limitations of TiVA Incompatibilities with conventional data sources and models Reliance on the proportionality assumption Lags in data availability Requires significant adjustments Does not adequately capture the role of MNEs ▪ Compare results for Costa Rica under WIOD and OECD-WTO TiVA
- 14. www.bea.gov 14 Specific Comments for OECD ▪ What time period does the TiVA database cover? ▪ Is there a way to summarize the magnitude of estimates affected by the proportionality assumption? ▪ Can you give the reader a sense of the magnitude of the total adjustments and the discrepancy that is reconciled? ▪ Is RAS required or could a least squares method also be used? ▪ The discussion on heterogeneous firms on page 21 seems to be picked up again on page 37. Can the sections be consolidated? ▪ Can the section on going beyond TiVA be developed into a separate paper or trim some of the argument in favor of TiVA? The scope of the paper is a bit broad. The section on trade in jobs seems superfluous to this particular paper. ▪ The objectives of TiVA articulated in the last section should be included in the introduction.
- 15. www.bea.gov 15 Specific Comments for COMEX ▪ Were there any challenges back-casting the 2011 IO table to 2009 since 2009 was a global recession year? ▪ Since Bullón et al. will be published soon, can you exclude the appendices that talk about methodology? The scope of the paper is a bit broad. You may want to bring appendix 1 back into the body of the paper. ▪ Should the rubber and plastics industry be shown in figure 7? ▪ In figure 12, what is RoW2? ▪ While the focus in figure 12 is cross-country comparisons, are inter-industry comparisons within countries also possible? If so, can you either use the same percentage scale for each industry or include all industries in one figure with a residual for all other? ▪ In the conclusions, can you elaborate on specific multilateral data efforts that would be useful to Costa Rica?
Editor's Notes
- National statistics build pictures based on interrelationships between producers and consumers and RoW. As relationships with RoW become more complex, there is an increasing need to consider global production within a global accounting framework. In the construction of national statistics, greater emphasis is needed on the role of RoW as a source of demand and as a supplier for demand. TiVA indicators have changed our view of global fragmentation of production, patterns of trade, countries’ relative rankings in trade activity, factors that affect competitiveness, and the role of trade in services.
- The Apple iPod example is given in Dedrick, Kraemer, Linden (2010). The micro approach does not reveal where intermediate inputs are created. The macro approach requires the identification and creation of links between exports from one country and intermediate purchasing industries or final demand consumers in the importing country.
- Statistics offices are generally able to provide information for the white cells. The grey cells denote areas where statistics offices generally cannot provide information—the grey cells report trade flows between industries and consumers across countries. Thus, the grey cells are a key challenge but central to the construction of a global IO table.
- The OECD harmonized IO tables split intermediate flows into tables of domestic origin and imports and show transactions among domestic industries. As a complement to the OECD harmonized IO tables, the OECD supplemental tables on imports break down total imports by user (industry and category of final demand). The bilateral trade flows are reported in the grey cells in the previous table. The proportionality assumption applies the same share of imports of a product for all uses of the product. That is, if 40 percent of domestic supply of a product is imported, then all intermediate users and final users use 40 percent of the share of imports. BTDIxE = Bilateral Trade Database by Industry and End-use category. The database breaks down trade in goods on the basis of the use of the traded good.
- The quality of TiVA indicators requires adapting some concepts and techniques that underlie national IO tables to fit the global IO framework. The paper introduces a few innovative ideas for improvements, one of which is alternative criteria for aggregating firms. Current aggregation conventions use industrial classification and assume each firm classified to a given industry has the same production function. However, the authors point out the global production arrangements tend to be heterogeneous across firms, so the homogeneity assumption does not hold, which can generate distortions in technical coefficients. Exporting firms are generally more integrated into GVCs and typically have higher foreign content ratios. The ability of national and global SU tables and IO tables to describe demand and supply relationships has become more difficult based on industry groupings alone. The TEC project is a collaboration between OECD and Eurostat that links trade registers and business registers. The TEC project reveals there is a scope for national statistics offices to aggregate firms on the basis of size, foreign vs. domestic ownership, and import / export intensity in addition to industrial classification. The inclusion of developing countries is important because 1) they show considerable diversity in their degree of integration into GVCs, 2) more information helps for policy decisions, and 3) consumers in developing countries are important drivers of growth and production in other economies. Some data for existing countries in ICIO are as old as 2000 and have had to be extrapolated for more recent years.
- The authors provide an interesting discussion on the role MNEs play in TiVA measures. MNEs have been important drivers of the growth in GVCs. TiVA indicators do not currently differentiate value-added generated in an economy’s exports between foreign owned and domestically owned firms. Thus, TiVA indicators do not necessarily reflect how countries truly benefit from GVCs since part of the value-added that is generated does not remain in the host economy.
- IIOTs with more countries have to make more technology assumptions in order to account for the fact that many countries do not have a detailed SU table that can serve to build on a national IO table. More assumptions generate a larger margin of error in estimates of interactions between industries and across countries. COMEX performed an economic interdependency analysis to determine their main trade and investment partners. Several important trade partners in Central America are not in any publically available IIOTs that are based on SU table, which means a large proportion of Costa Rica’s interactions with RoW in the resulting IIOT are interactions with close neighbors.
- Partner shares of exports and imports do not change significantly between gross measures and value-added measures. The largest difference for exports is with RoW. The largest difference for imports is with the U.S. The relative positions of partners does not change for exports but does change for imports—i.e., Western Europe, China, Mexico, Brazil, and Rest of Europe.
- TiVA measures reveal a notable shift in Costa Rica’s bilateral trade balances with some major trading partners. The trade deficit with the U.S. under TiVA is just over a third the size of the deficit under gross measures. Deficits are also smaller with Mexico and Brazil. The trade surpluses with Western Europe and RoW are just over half the size of the surpluses under gross measures.
- Revealed comparative advantage is an index measuring a country’s specialization in a given industry by comparing the share the industry represents in the country’s exports to the world share of the industry in world exports. A revealed comparative advantage is greater than 1. Under TiVA, Costa Rica has a revealed comparative advantage in 8 industry sectors. Three of the sectors—hotels and restaurants, agriculture, food—are closely linked to natural capital. However, the advantages realized in other sectors such as other business services and electrical and optical equipment reflect policies designed to attract FDI. Relative to other countries in WIOD, Costa Rica’s revealed comparative advantage in electronic and optical equipment is the fifth highest in the world (behind Taiwan, Korea, China, and Japan), and their revealed comparative advantage in other business services is second highest in the world (behind Great Britain).
- Multiple counting of exports in some industry sectors may generate a misleading revealed comparative advantage. Rubber and plastics is a revealed comparative advantage under gross measures but a revealed disadvantage under TiVA. Revealed comparative advantage may also increase under TiVA as shown for electrical and optical equipment.
- TiVA measures ultimately add new perspective for policy purposes. The COMEX paper makes the point that not all assumptions in IIOTs work for some countries. Since Costa Rica has integrated its own IO table into WIOD and OECD plans to integrate Costa Rica into ICIO, future work should be able to discern the effects of overarching assumptions.