Upgrading in Global Value Chains

Erol Taymaz
Department of Economics
Middle East Technical University

13 December 2017

Outline

Globalization

Global value chains

Global trade (exports of goods and services), by type of TNC involvement, 2010

Source: UNCTAD, 2013: 16.

GVC participation, 1995 and 2009

Source: OECD, WTO and World Bank (2014: 14)

Domestic value added trade shares of the top 25 developing economy exporters, 2010

Source: UNCTAD (2013: 14)

Foreign value added share (foreign value added as a share of exports) indicates what part of a country’s gross exports consists of inputs that have been produced in other countries.

Domestic value added share (the share of the country’s value added incorporated in third countries gross exports) can be used as an indicator for the extent of participation in downstream activities.

GVC participation is simply the sum of foreign and domestic value added shares.

Share of foreign value added in exports, selected industries, 2010

Source: UNCTAD (2013: 7)

Global Value Chains and productivity

Stages of production and value chain

Value added in textile/clothing value chain (2005-2007 average values)

Source: Taymaz, Yilmaz, and Voyvoda (2011: 155)

The TOSP framework

The TOSP framework

Source: Baldwin (2013)

The “Smile Curve”: Good and bad stages in the value chain

Source: Baldwin (2013)

Different stages of production process can be spread geographically depending on the costs and benefits of scattering stages of production. The benefits of dispersion increases with the diversity of production conditions in various countries (most notable by differences in labor costs) whereas the decline in coordination and transportation costs facilitates the dispersion of the production process.

Upgrading in Global Value Chains

Upgrading as a linear process

GVC researchers tend to view “upgrading” as a linear process starting with “process upgrading”, then moving on to “product upgrading”, and finally on to “intra-chain” and/or “inter-chain” upgrading.

But it is questionable…

Global Value Chains as a linear relationship

This is also questionable…

How to identify a Global Value Chain

Identification of GVCs

Identification of GVCs

IO matrix for commodity i

\(IO_i = B*diag((I - B)^{-1}e_i)\)

where B is commodity-by-commodity input coefficients matrix, I the identity matrix, and e a column vector of outputs (i’th element is equal to 1, all others zero). diag(.) is the diagonal function.

GVC metrics

Motor vehicle chain

Motor vehicle gasoline engine chain

Cement chain

Ready-mix concrete chain

Guided-missile & space vehicle chain

Ice cream chain

Upstreamness

names upstreamness
1 Automobile manufacturing 1.001
2 Tire manufacturing 2.001
3 Motor vehicle body manufacturing 2.002
4 Motor vehicle gasoline engine 2.003
5 Glass and glass product manufacturing 2.003
6 Audio and video equipment 2.004
7 Motor vehicle transmission 2.006
8 Motor vehicle steering 2.011
9 Motor vehicle seating 2.011
10 Other motor vehicle parts 2.015
11 Motor vehicle electrical and electronic equipment 2.016
12 Paperboard container manufacturing 2.016
13 Motor vehicle metal stamping 2.018
14 Other plastics products 2.025
15 Copper rolling, drawing, extruding 3.150
16 Petroleum refineries 3.837
17 Other basic organic chemicals 4.020
18 Petrochemical manufacturing 4.025
19 Oil and gas extraction 4.872

Upstreamness

Further research

Thanks for listening …