Measuring Value In Global Value Chains

This paper compares alternative ways of measuring participation of a country in Global Value Chains (GVCs) and estimates distribution of gains between countries in terms of Countries' shares in total value-added created by trade under GVCs. It further shows that Conclusions and implications of linking into GVCs can change drastically, especially for Developing countries, with alternative ways of measuring participation in GVCs. Gains from Linking in GVCs in terms of net value-added exports are estimated for different countries. Sector wise analyses is undertaken to assess the importance of GVCs to developing countries. Using the OECD-WTO database on Trade in Value Added (May 2013) the paper shows that 67% of total global value created under global value chains accrue to OECD countries while share of NICs and BRICS countries is 25%. Only 8% of total value added is shared among all other developing countries and LDCs. Forward linkages (i.e., domestic value-added exports of a country which goes into exports of other countries) and backward linkages (foreign value added in gross exports of a country) in GVCs are estimated for all countries. It is found that in case of US, Japan and UK, forward linkages are much stronger than backward linkages, indicating net value-added gains from linking into GVCs. China and Korea, on the other hand, have negative net value added gains. Other developing countries, like India, Viet Nam, Thailand, Malaysia and Philippines also have less than one ratio of forward to backward linkages in GVCs. Examining the structure of exports in different countries and gains from participation in GVCs, the paper argues that it may not help to trade more without compensating gains linked to production activities and creation of domestic value added. It is therefore important to ‘gainfully link into GVCs’ in identified industries where the country is able to derive net positive domestic value added gains.