Value Chains in Global Production Networks: An Application of Global Input-Output Tables

The increasing segmentation of a given production process into different stages in different countries posts challenges to the measurement of true value added in international trade. Analysis based on gross trade statistics gives misleading signals for a country’s dependence on exports and can exaggerate the technological sophistication of developing countries’ exports. In this paper, we extend quantitative measures of vertical specialization proposed by Hummels, Ishii, and Yi (2001) into a consistent framework with many countries based on an international input-output (I-O) model. The extended measures relax the unrealistic assumptions made by Hummels et al. and are consistent in a world in which multiple countries export intermediate inputs that in many cases cross multiple borders. Like other recent analyses of value chains in the literature, such as Johnson and Noguerra (2008), our measures distribute foreign value-added in a country’s exports to its original sources. In addition, our measures provide addition insights by further decompose domestic value-added exported by a country in three ways. These channels include value added embodied in (1) exports of final goods; (2) intermediate goods that sent directly to their final destination, where they are assembled and consumed; and (2) intermediate goods that are sent through multiple markets on their way to their final destination. Using a global I-O table constructed from the GTAP database (version 7), we compute our measures for 26 country and 40 industries. The examination of value-added sent through each of these channels allows us to rank each country's position in the global value chain. Japan, the United States, and the 15 Western EU members are located farthest upstream in the chain, while Viet Nam, Mexico, China, the 12 Eastern EU member countries and most Asian developing counties are located downstream in the value-chain.