In a 2023 report, Asian Development Bank (ADB) estimates real GVC participation rates to supplement the conventional nominal measure of GVC participation. To derive this, ADB’s nominal multiregional input-output tables (MRIOTs) for 62 economies, plus the rest of the world, from 2007 to 2022 are expressed in constant (base year 2010) USD prices.
Nominal MRIOTs account for changes in production technology, economic structure, prices, and exchange rates, while real MRIOTs reflect only the technological and structural changes of transactions covered in the tables. Thus, real GVC participation as an indicator disentangle the effect of inflation and exchange rate changes on nominal GVC participation rates. In this report, real and nominal GVC participation rates of the world and economies in Asia and the Pacific are analyzed.
Nominal and real GVC-related trade shares in total world exports have largely remained stable and consistent with each other since 2007, with an average of 45.2% and 45.0%, respectively, as shown in Figure 3.1. However, the effect of the recent inflationary surge is apparent for 2021, when total nominal exports exceeded real estimates by nearly 8%, the largest gap in the series. The corresponding gap in 2022 was more than 7%, the third largest gap in the series. This implies that price effects on the measurement of GVC participation have become large enough to affect our understanding of GVC levels and trends. It is therefore no longer sufficient to study GVC in nominal terms only.
While world GVC trade shares to total exports have remained relatively stable since 2007, participation rates have been considerably affected by major events such as the global financial crisis (GFC) (2007–2009), the United States of America and People’s Republic of China (US-PRC) trade conflict (2016–2019), and the COVID-19 pandemic (2020 onwards), as shown in Figure 3.2. The sharpest increases in real and nominal participation rates since the GFC were seen in 2021. However, while both series reached record-high levels by 2022, real participation fell further below nominal participation by 0.9 percentage points, the highest gap in the series, with the recent inflationary surge characterized by producer price inflation far outpacing consumer price inflation. The difference between producer price inflation and consumer price inflation is a key determinant of the size of the dollar price wedge.
Developing Asia’s nominal and real GVC participation rates have generally trodden close to global rates since 2007 (Figure 3.3). However, during periods of major crises, the region’s participation declined faster than the global average, indicating that its GVC trade was more sensitive to the impact of such events and shocks. Moreover, the region’s nominal and real participation rates were relatively less closely aligned than the global averages. The largest dollar price wedges for the region were seen between 2012 and 2016 before narrowing considerably in recent years.
Türkiye’s GVC participation between 2007 and 2022 appeared to be rising in nominal terms (Figure 3.4.a). However, since 2008, Turkish lira has been depreciating against the US dollar, and when this is taken into consideration, Türkiye’s GVC participation is shown to be flat over the course of the data series, fluctuating between 36% and 42% in real terms. Similarly, its backward participation rate has been rising in nominal terms (Figure 3.4.b). However, once currency depreciation and price effects have been controlled for, its backward participation, in real terms, has in fact been declining since 2007. In terms of forward participation, currency depreciation has had the opposite trend effect (Figure 3.4.c). The price wedge has also grown over time, with the largest gaps in 2021–2022, reflecting recent inflationary pressures.
Although Singapore’s real and nominal GVC participation rates were closely aligned between 2007 and 2014, the dollar price wedge started to increase in 2015 and sustained a relatively wide gap until 2020 (Figure 3.5.a). Singapore’s economic slowdown in 2015–2016, which coincided with a sharp depreciation of its currency, evidently affected its GVC participation. The backward participation rates had their steepest decline during this period, subsequently creating a dollar price wedge that reached its peak in the years leading up to the US-PRC trade dispute (Figure 3.5.b). Both nominal and real forward participation rates of Singapore have been rising since 2015 before declining in 2022 (Figure 3.5.c). During this period, the combined effects of inflation and exchange rate pass-through appear to have pulled nominal rates upward relative to real rates.
Kazakhstan experienced one of the largest surges of inflation in developing Asia after the pandemic, while its currency steadily declined between 2007 and 2022. Despite that, its dollar price wedge remained rather narrow throughout the period (Figure 3.6.a) Kazakhstan’s economy is dominated by the mining sector, with intermediate products like crude petroleum, gas, and crude metals—prices of which are globally determined in US dollars—consistently constituting the bulk of its exports (averaging 70%). On the other hand, products for final use made only a small contribution to exports (10%). Imports, meanwhile, were dominated by final products (80%). Such an economic landscape may have contributed to the close alignment of nominal and real forward GVC participation rates even in times of persistent inflation and tenge depreciation.
The People’s Republic of China’s (PRC) nominal and real GVC participation rates between 2007 to 2022 were generally closely aligned with each other, with its real participation being higher since 2011. This dollar price wedge changed direction in 2022, alongside a producer price inflation surge and yuan depreciation. Interestingly, the economy’s real participation trend was largely driven by its backward participation, while the nominal one was driven by forward participation. Even as nominal rates showed PRC’s backward participation to have stagnated since 2018, in real terms it seemed not only to have recovered from the effects of both the trade conflict and the pandemic but to have further strengthened in 2022 (Figure 3.7.b.). The converse appeared to be the case with forward participation (Figure 3.7.c.).
Between 2007 and 2013, the nominal and real GVC participation rates of the United States (US) largely coincided (Figure 3.8.a). Between 2014 and 2020, the US dollar generally appreciated against the currencies of the largest exporters to the economy, coinciding with the real series dominating, while the dollar price wedge expanded, narrowing only by 2021. Further, by 2022, the US dollar picked up strength and the economy’s participation rate reached record levels both in nominal and constant terms. The dollar price wedge between its nominal and real backward participation trend has been significant since 2014, reaching the maximum in the series in 2022. On the other hand, the corresponding wedge in the forward series was considerably smaller for any given year.
Revealing the presence of differences between nominal and real values at the global and select-case economy level is intended to facilitate further discourse and research on the subject matter. This would be particularly useful in cases of economies that display large, persistent, and unpredictable disparities, or even polarity. Taking further steps to capture and understand the dollar price wedge could become an important statistical and economic tool as it offers the possibility of potential interventions with more information to base decisions on.