Domestic Value Added Research Articles

Spatio-temporal evolution and driving mechanism of metal value flow networks: A global value chain perspective

The lengthening of the global value chain (GVC) and the deepening of the transnational labor division system have led to frequent cross-border flows of metal values worldwide, and the pattern of the international metal trade is facing reconstruction. This paper combines a new trade accounting framework and a complex network model to construct global metal domestic value added (DVA) and foreign value added (FVA) flow networks based on global multi-regional input‒output (MRIO) tables for 2000 and 2007–2022 and then analyzes their structural topological features and spatio-temporal evolution trends at the macro, medium, and micro levels. Then, the main driving factors are investigated using the exponential random graph model (ERGM). The results show that the DVA and FVA networks are expanding and have obvious aggregation effects and small-world characteristics, that the community divisions show a trend toward regional integration and worldwide multipolarity, and that Germany is the most important transportation hub and trade medium in the FVA network, while China and the United States are, respectively, the largest creator and consumer of the world's metal value flow. In addition, the DVA network is more susceptible to node attribute effects such as GDP, trade openness, population size and foreign direct investment, while the FVA network is more susceptible to exogenous network effects such as geographic distance and colonial ties.

Impact of digital services trade restrictiveness on manufacturing export efficiency

ABSTRACTBased on the application of the stochastic frontier analysis (SFA), this article examines the impact of digital services trade restrictiveness (DSTR) on the total export efficiency and domestic value-added (DVA) export efficiency of manufacturing industries in 46 economies from 2014 to 2019. Results show that DSTR in exporting economies have a negative impact on all types of export efficiency, whereas DSTR in importing economies have a negative impact solely on the efficiency of total exports and final goods exports. Further researches indicate that the impact of DSTR is mitigated in exporting economies with larger information and communication technology (ICT) infrastructures, such as international bandwidth and mobile cellular. From the perspective of multiple policy areas, the DSTR of infrastructure connectivity, electronic transactions, and other barriers reduce the total export efficiency. However, only the DSTR of these areas in exporting economies significantly affect DVA export efficiency. Overall, our findings can inspire economies to adopt more precise and scientific trade policies while participating in the governance of digital services trade and supporting the growth of higher-quality manufacturing exports.

The economic fitness of nations in value added. 2000–2014

In this paper, we explore the Economic Fitness (EF) indicator from the World Bank Database that measures the nations level of international competitiveness. At the same time, using input–output tables, we present our estimations of this new metric, replacing the revealed comparative advantages (RCA) from exports in gross value with an estimate of RCA from exports in domestic value-added (DVA). We find that between 1995 and 2015, there is a positive relationship between Economic Fitness and per capita GDP for low and middle-income countries. Besides, we also show that the estimations of the EF using the domestic value-added content of exports changed significantly from 2000 to 2014 since there has been a widening gap between global exports in gross value and exports in value-added. The latter suggests that, given the increasing levels of productive links at the international level, the competitiveness of nations is also conditioned by how they participate in global production networks.

Access to overseas information and domestic value added: Evidence from China

This study identifies information accessibility as a determinant of domestic value added (DVA). To establish causality, we use the sudden termination of Google’s search services in China to conduct a difference-in-differences estimation. Given that ordinary trades rely more on foreign market information than processing trades, we classify firms with high (low) ordinary trade exports as treatment (control) group and show that Google’s exit has a significant and persistent negative impact on DVA for treated firms. Our findings are more pronounced for firms in industries dominated by foreign technology and firms with more types of goods or higher capital intensity. The alternative access to foreign sources can weaken the impact of Google’s exit. Three underlying mechanisms associated with the falling accessibility of foreign information are the downward export growth, the rising costs of overseas intermediate inputs, and the decreasing innovation. Overall, this study enriches our understanding of a fundamental but neglected factor in driving DVA.

Decomposition analysis of global value chains: Uncovering vulnerable spots in a selected economy (the example of Czechia)

Recent global turmoil has added to the importance of food security issues and the sustainability of production processes worldwide. This study aims to uncover the degree of domestic industries' dependence on the international fragmentation of production processes and identify the countries of origin of those producers who have managed to displace domestic producers in corresponding Global Value Chains. Using data retrieved from the World Input-Output Database, we studied Czechia's example via demarcation of domestic value-added (DVA) shares from foreign ones in final domestic products. A declining trend in DVA signalises an ever-increasing dependence on foreign inputs. The conducted analysis allowed a VA-structure (and its dynamics for a sequence of years) to be clearly identified for final domestic products among 30 industries that virtually cover the entire economy. The most alarming finding is the marked reduction of DVA in food manufacturing, which points to a weakening of Czech food security. Realising all the connections within GVCs may help to identify vulnerable spots in domestic production processes and prepare adequate response mechanisms in potential situations of possible interruptions from the foreign side. The detailed explanation of the decomposition technique provided in the study can be used in similar analyses of other economies to reveal noteworthy trends and prepare response measures.

Do developing countries gain by participating in global value chains? Evidence from India

Is it in the interest of a developing country to promote strong local linkages for domestic industries or to participate in global value chains (GVCs) wherein linkages are globally dispersed? This paper informs this debate by empirically analyzing which one of these strategies would result in higher levels of domestic value added (DVA) and employment in India. Using a unique panel data on DVA and jobs tied to Indian exports from 112 sectors for the period 1999–2000 to 2012–2013, we show that greater backward GVC participation—use of imported inputs to produce for exports—leads to higher absolute levels of gross exports, DVA and employment. This result implies that labor abundant countries can reap dividends by adopting policies aimed at strengthening their backward participation in GVCs. Our findings are robust to various estimation techniques and instrumental variable approaches to address potential endogeneity concerns.Supplementary InformationThe online version contains supplementary material available at 10.1007/s10290-021-00452-z.

Impact of Backward Linkages and Domestic Contents of Exports on Labor Productivity and Employment: Evidence from Japanese Industrial Data

This study examines how backward linkages (foreign value added [FVA] exports) and domestic value-added (DVA) exports impact industry-level labor productivity and employment in Japan by estimating a static and dynamic panel model using data drawn from the World Input-Output Dataset and Socio-Economic Accounts. We find that the domestic content of trade is a key driver of productivity and employment in Japan for all industries, while backward linkages lead to declining productivity and foster labor displacement. A sectoral analysis reveals that productivity benefits most of the backward linkages and domestic value-added exports in the manufacturing industry but weakens as the backward linkages increase in the service industry. We find that the DVA exports variable promotes employment, whereas the FVA variable displaces it.

Determinants of Domestic Value Added in Exports: Empirical Evidence from India’s Manufacturing Sectors

Over the last decade, trade policy reforms have significantly influenced the internationalization of Indian manufacturing firms, leading to deeper participation of the country in global value chains (GVCs) and international production networks (IPNs). With the growing participation of foreign firms in the value chain, the domestic value-added (DVA) content embodied in Indian exports have displayed a declining trend. Recently, in 2020, India has decided to launch the ‘Atmanirbhar (self-reliant) Bharat Abhiyan’, which, in principle, aims to consolidate the manufacturing sector, leading to increasing DVA embodied in exports (DVA-content), apart from employment generation. The current article attempts to analyse the drivers of India’s DVA in exports for select manufacturing industries over 2000–15 by using the OECD trade in value added (TiVA) database. The empirical results reveal that sectoral DVA content is positively influenced by both domestic capital and foreign direct investment (FDI), and labour skill intensity, but negatively influenced by the presence of unskilled workers. Moreover, FDI inflows in sectors characterized by high skill-intensity and high-relative growth rate play a crucial role in influencing DVA content. Finally, the presence of larger and more capital-intensive firms is found to be a major driver of DVA. On the policy front, therefore, the empirical results underline that export promotion policies alone will not be able to resolve employment worries, a major concern in India, as vast numbers of unskilled and low-skilled workers trapped in the agricultural sector or working in unorganized and micro-industries fail to figure in the country’s export value addition. A concerted effort towards labour skill enhancement as well as technology transfer is necessary for exports to play a more positive role.

The political economy of protection in GVCs: Evidence from Chinese micro data

This paper explores the political economy of import protection in a setting where imports may contain a country's own domestic value added (DVA) via domestically-produced inputs that get exported and used in foreign downstream production. We show that import-competing producers and their domestic input suppliers are generally allies in favor of protection, but this alliance weakens as DVA increases, because a home tariff on finished goods decreases foreign demand for home inputs. Empirically, we examine detailed discriminatory trade policies of 23 countries toward China and use Chinese transaction-level processing trade data to construct a measure of DVA. We also measure input customization. We find that both upstream and downstream political organization increase downstream protection, but the effect of the former is smaller when DVA as a share of final imports from China is larger. Tariffs on products containing inputs that are neither customized nor politically organized appear to be unaffected by the DVA share.

Features and evolution of global energy trade network based on domestic value-added decomposition of export

With the extension and expansion of the global value chain of energy, the traditional trade accounting method is no longer able to reflect the intrinsic value flow and country gains of energy trade, which render it necessary to further analyze the value added of energy trade from the perspective of global value chain (GVC). Against this backdrop, we construct the Global Energy Trade Domestic Value-added (DVA) network and three sub-networks of it by means of the new trade accounting system, and shed light on the topological features and major driving factors of those networks, and get the following results. First, at the macro level, the growing DVA networks exhibit vivid core-periphery structure, display “small world” characteristics in the early stage but have the average path lengths increased later. At the medium level, the DVA networks are split into 3 communities, and the community structure of the trade for intermediate energy products remains constant, but the trade for final energy products is volatile. At the micro level, advanced and emerging economies stay at the core of global energy trade and play key intermediary roles. The USA and Germany are key players in the downstream and intermediate part of the GVC of the energy sector, while China is the core economy that imports intermediate energy products to manufacture final products for domestic consumption. Finally, economic and population resultant forces, historical links, bilateral trade agreements, especially common language and common currency are important driving factors of DVA network and its sub-networks.

Do Government Subsidies Affect Enterprises’ Global Value Chain Upgrading? From the Perspective of Export Domestic Value Added Raito

At present, China is at an important historical moment of industrial transformation and upgrading and fierce global competition. Faced with the new situation, how to motivate the role of government subsidies in improving the export competitiveness of Chinese manufacturing enterprises has become an important topic for us to study. In recent years, the position of China’s manufacturing industry in the global value chain has risen, and the domestic value added（DVA）of Chinese manufacturing enterprises’ exports has risen by more than 10% in the period of 2000-2006. So, we cannot help asking how government subsidies affect the domestic value added ratio（DVAR）of enterprises’ exports, and what the underlying mechanism is.Based on the background of China’s integration into the global value chain, this paper analyzes the impact and mechanism of government subsidies on the DVA of Chinese manufacturing enterprises’ exports by using the matching data of China’s industrial enterprise database and Customs trade database from 2000 to 2013.The results show that government subsidies have a positive impact on enterprises’ DVAR. Heterogeneity analysis shows that, government subsidies have the biggest effect on export DVAR of pure ordinary trade enterprises, next are mixed trade enterprises, and the last are pure processing trade enterprises. Also, government subsidies have a significant impact on export DVAR of private enterprises, but their impact on DVAR of state-owned enterprises and foreign enterprises is not obvious. The mechanism analysis shows that government subsidies have a positive impact on enterprises’ DVAR through the innovation incentive effect”. Lastly, the dynamic decomposition results at the industry level show that, the contribution of the intra-firm effect and the resource reallocation effect is 49% and 51% respectively. Further empirical analysis shows that, the resource reallocation effect is an important way by which government subsidies promote the industry DVAR growth.The above findings not only provide some micro evidence for objectively evaluating the effect of Chinese production subsidies, but also provide beneficial reference for using the government policy to enhance export competitiveness in the global value chain system. Firstly, enterprises should make full and reasonable use of government subsidy funds. Meanwhile, enterprises must attach great importance to technological innovation, increase investment in R&D, think highly of independent intellectual property rights, and develop and cultivate core technologies, so as to promote the upgrading of enterprises’ production links from the low end of the value chain to the middle and high end of the value chain. Secondly, the government should encourage domestic general trade enterprises to import high-quality, low-cost and diversified intermediaries, cultivate and improve the domestic intermediary market through the technology spillover effect, and then enhance the export DVAR of processing trade enterprises. Finally, the government should fully realize that the industrial support policy plays a positive role in promoting the status of Chinese enterprises in the global value chain, and should devote itself to formulating a reasonable enterprise subsidy policy so as to give full play to the positive role of the government as a visible hand”.In a word, the possible expansion of this paper is mainly embodied in the following three aspects: Firstly, it will help us to further understand the differential impact of government subsidies on enterprises’ export DVAR. Secondly, it is conducive to enhancing our understanding of the mechanism of government subsidies affecting enterprises’ export DVAR. Thirdly, we inspect the contribution source of industry export DVAR and the role of the resource redistribution effect in it from the perspective of the medium-sized industry, which provides beneficial enlightenment for China to improve its export competitiveness under the background of the global value chain.

A quantitative analysis of global value chains: why has domestic value-added of China’s exports increased?

This paper focuses on the participation of China into global value chains. First, this paper measures the domestic value-added (DVA) of China’s exports during 2000–2014 based on the World Input–Output Database. The results confirm that the gap between the DVA and gross exports varies between countries and composite industries. Second, this paper uses a structural decomposition analysis to examine nine determinants that affect the change in DVA of China’s exports over time. Moreover, the result of the analysis of China is compared with those of Japan and the USA. Four notable facts are found. First, although the export share of high-technology manufacturing goods has risen significantly, the change in export structure failed to increase the DVA of China’s exports effectively. Second, the substitution of domestically produced intermediate inputs for imported intermediate inputs raised the DVA of China’s exports after the mid-2000s, while it decreased the DVA of Japan and the USA’s exports in most time. Third, the rise in DVA of China’s exports was accompanied by the substitution of labor income for capital income. However, the same result was absent in Japan and the USA. Finally, the increases in labor productivity and wage per person contributed greatly to the growth in DVA of China’s exports.

The DNA of the domestic value added (DVA) in exports: Firm‐level analysis of DVA in exports

AbstractThis paper sheds light on the relationship between domestic value added in exports (DVA) and the different ways firms participate in GVCs by exploiting a detailed firm‐level data set for the whole population of Slovenian exporting firms for the period 2002–14. The paper draws attention to those firm characteristics that allow a greater share of DVA to be captured. Although reliance on industry‐level data from input–output tables is the most common way of doing this in the literature, this paper develops a method for estimating DVA in exports using firm‐level data by adapting the approach taken by Kee and Tang (2016). The paper finds that in terms of DVA, domestic‐owned exporting firms outperform more productive foreign‐owned firms and that firms not affiliated with permanent suppliers from abroad capture higher DVA in exports. Positive outcomes of DVA in exports can be observed, all else being equal, for firms with a larger share of intangible capital per worker and firms with a smaller share of exports based on imports of the same products. The results also show that when exporting more to less demanding markets, like the countries of former Yugoslavia, firms benefit more in terms of greater DVA gains in exports.

Global or Regional Value Chains? Evidence from China

We document the regional characteristics in China’s global value chains. In contrast to the previous related literature, we focus on the right definition of domestic value added (DVA) in bilateral–sector exports and study the heterogeneity of the share of DVA finally absorbed abroad in exports (DVA ratio) across bilateral trade partners. We find that China’s DVA ratio within the “Asian factory” region is smaller and declines more over time than outside, showing typical regional characteristics of China’s value chains. Instead of final exports, intermediate exports play a dominant role in explaining the regional characteristics. This is a new finding. Using a structural gravity model, we find that DVA ratio in intermediates has fallen more across proximate trade partners for China.

Re-estimation of China-EU trade balance

Significant discrepancy exists between official Chinese and EU trade statistics on the magnitudes of the China-EU trade in goods as well as in services. While the discrepancy of China-U.S. trade surplus has been thoroughly studied by scholars and policymakers, the discrepancy of China-EU trade surplus is barely discussed in literatures. This may lead to seriously bias in understanding China-EU trade relationship, and even cause unnecessary trade friction. In this paper, we discuss the reasons behind the discrepancy of China-EU trade and quantify the extent to which the discrepancy is contributed by transportation costs, re-exports and their markups. We also employ the input-output tables of both EU and China, and measure the China-EU trade balance of goods and services in both domestic value-added (DVA) terms as well as in gross terms. The discrepancy of China-EU trade balance in goods (and services) still exists after adjustments, but is significantly reduced. With the adjustments on price and re-exports, in 2016, the discrepancy of China-EU trade in goods and services of Chinese release over EU release would shrink from an initial estimation of US$90.6 billion to an estimation of US$20.4 billion in gross terms, and further to US$15.8 billion in value-added terms.

Domestic Value-added Growth is Vital

Gains under the global value chains (GVCs) depend on how much of a country’s domestic value added (DVA) is passing onto other countries. However, India’s manufacturing sector is found to be hollowing out, that is, its DVA growth is declining. This article estimates the linkages of manufacturing sector into GVCs, focusing on machinery and textiles industries. It measures foreign value added in exports and gains under GVCs using intercountry input–output tables of OECD–WTO Trade in Value Added (TiVA) database (2015). TiVA shows a decline in India’s share of DVA exports in its gross exports. However, India has ‘net gains’ from linking into GVCs in the two industries as the ratio of forward linkages to backward linkages is greater than one. This indicates that value-added exports are greater than value-added imports. Thus, India has enough potential to compete with other countries in the upper ends of value chains in both its machinery and textiles industries.

Domestic value added and employment generated by Chinese exports: A quantitative estimation

We develop an input–output methodology to estimate how Chinese exports affected the country's total domestic value added (DVA) and employment in the years 2002 and 2007. For every US$1000 dollar of Chinese exports in 2007 (2002), DVA and employment are estimated to be US$591 (US$466) and 0.096 (0.242) person-year, respectively. To implement these estimations, we use hitherto unpublished Chinese government data to construct several completely new datasets, including an input–output table with separate input–output and employment-output coefficients for processing exports, non-processing exports, and output for domestic use. We hypothesize that, in comparison with the export sector, China's domestic sector would be relatively autarkic due to China's history of central planning. We expect that exports would generate less DVA and employment than output for domestic use. Processing exports, which are highly dependent on imported inputs, would similarly generate less DVA and employment than non-processing exports. Our findings support these expectations. For both 2002 and 2007, the DVA and employment effects of domestic final demand were higher than those of non-processing exports, which were in turn higher than those of processing exports. However, with the progress of economic reforms, we found that the total DVAs of exports and domestic final demand have converged from 2002 to 2007.

Estimating domestic content in exports when processing trade is pervasive

For many questions, it is crucial to know the extent of domestic value added (DVA) in a country's exports, but the computation is more complicated when processing trade is pervasive. We propose a method for computing domestic and foreign contents that allows for processing trade. By applying our framework to Chinese data, we estimate that the share of domestic content in its manufactured exports was about 50% before China's WTO membership, and has risen to nearly 60% since then. There are also interesting variations across sectors. Those sectors that are likely labeled as relatively sophisticated such as electronic devices have particularly low domestic content (about 30% or less).