Global Value Chains

With the increasing demand for GVC research, there is a pressing need for quantitative approaches to characterize and to describe the production linkages across sectors and economics. The ADB multiregional input-output (MRIO) undertakes statistical initiative to address this crucial analytical gap by constructing input-output tables of its 19 developing member economies. The initiative builds on the latest World Input-Output database (Timmer et al., 2016) by augmenting the tables with the inclusion of 19 developing member economies and extending the coverage up until the latest year.

Input-output tables (IOTs), as a framework, provides a detailed picture of an economy wherein the mutual interrelationships among the producers and consumers are systematically quantified and validated. For GVC analysis, it provides the ideal quantitative measurements for studying the structure of different economies and the interactions between them. Moreover, this approach enables researchers to 1) capture the progression of the interdependence of economies in global value chains, 2) identify the relative importance of GVCs for each country, and 3) uncover the underlying policy implications of emerging trade patterns.

Traditional trade (cross border for consumption) statistics can no longer capture important elements of current trade relationships between economies. The issue stems from the documentation and presentation of trade data in gross terms, inevitably leaving out information about the local and foreign contents in the trade economy, or the contributions of different industrial sectors to its production.

The GVC index system developed by Wang et. al. (2017) provides a method to trace the value added created by production across national borders that are embodied in intermediate trade flows at the bilateral sector levels. This decomposition framework produces a robust panel dataset covering 62 economies from years 2000, 2007 to 2017.

While GVCs may denationalize the comparative advantages of countries due to the deepening internationalization of production linkages, the traditional method introduced by Bela Balassa mitigates this issue by presenting an index to calculate the revealed comparative advantage (RCA) of an economy through its exports of any given good or service. On this method, an economy is defined to have an RCA in a product if it exports more than its "fair share," or a share that is equal to or greater than the share of total world trade that the product presents.

Another method was developed by Wang, Wei, and Zhu (2014) to address that an economy's RCA in a sector should also be redefined, particularly for the context of analyzing trade thrsough value added measures. The new method proposes that the RCA can be estimated using the exports of value added attributable to a given sector of an economy. This new RCA is based on domestic value added embedded in the exports of the economy from a linkage perspective, instead of simply using gross measures.