Trade in Value Added (TiVA) is a statistical method that seeks to estimate the sources of value added in producing goods and services for export and import. By breaking down the flows in global supply and production chains, TiVA provides a more accurate picture of trade patterns and the interconnectedness of economies.Have you ever wondered how much value is added by each country in the production and trade of goods and services?
Traditional trade statistics can sometimes be misleading, as they often only capture the gross flows of goods and services across borders. This can lead to double counting, where inputs that are exported and then re-imported are counted multiple times.
To overcome this issue, a statistical method called Trade in Value Added (TiVA) has been developed. TiVA allows us to identify the sources of value added in global supply chains, giving us a better understanding of how goods and services are produced and consumed worldwide.
Trade in Value Added (TiVA)
Definition and purpose of TiVA
TiVA is a statistical method that aims to estimate the value added at each stage of production for goods and services that are traded internationally. It provides a more comprehensive and accurate perspective on trade patterns by considering the inputs and value added along the entire supply chain.
By analyzing TiVA data, policymakers and researchers can gain insights into the role of different countries in global production networks and identify opportunities for economic growth.
Flows in global supply and production chains
Global supply chains are intricate networks of production, where inputs from various countries are combined to produce goods and services for worldwide consumption. TiVA helps us understand these flows by tracing the journey of inputs and components across borders.
For example, a cellphone may have components that are produced in different countries and assembled elsewhere. TiVA allows us to track the value added by each country involved in the production process, thereby avoiding the double counting issue.
Double counting issue in traditional trade statistics
Double-counting problem in traditional trade statistics
Traditional trade statistics often measure gross flows of goods and services across borders without accounting for the inputs that are exported and then re-imported. This can lead to double counting, where the value of the inputs is counted multiple times, artificially inflating trade figures.
For example, if a country exports raw materials, which are then processed and re-imported as finished goods, the traditional trade statistics would count both the raw materials and the finished goods as separate exports.
TiVA approach to avoid double-counting
To overcome the double-counting issue, TiVA takes a net trade flow perspective. It considers the value added at each stage of production and allocates it to the country where the value was created.
Using the previous cellphone example, TiVA would look at the value added by each country in producing the components and allocate that value accordingly. This approach gives a more accurate picture of each country’s contribution to global trade and avoids the problem of duplicated value.
In conclusion:
Trade in Value Added (TiVA) is a statistical method that provides a more accurate understanding of global trade patterns by estimating the sources of value added in producing goods and services for export and import. By avoiding the double-counting issue present in traditional trade statistics, TiVA allows us to see the interconnectedness of economies and the role of different countries in global supply and production chains.
Through the use of TiVA, policymakers and researchers can make more informed decisions and identify opportunities for economic growth and development. OECD’s role in TiVA measures
OECD’s analysis of policies for global value chains
The Organisation for Economic Co-operation and Development (OECD) plays a crucial role in analyzing and evaluating policies that impact global value chains.
Through its research and analysis, the OECD provides policymakers with valuable insights into the opportunities and challenges posed by global value chains and helps them design effective policies for development. The OECD’s analysis of trade policy examines the impact of trade barriers, such as tariffs and quotas, on global value chains.
By understanding how these barriers affect the flow of inputs and components across borders, policymakers can make informed decisions to improve market access and reduce trade costs. Additionally, the OECD analyzes investment policies to identify how countries can attract foreign direct investment (FDI) and promote the formation of global value chains.
Furthermore, the OECD’s analysis of policies for development focuses on supporting countries in integrating into global value chains and enhancing their participation. This involves identifying the sectors and activities in which countries have a competitive advantage, as well as providing recommendations on policy reforms to enhance productivity and competitiveness.
The OECD’s research and recommendations contribute to creating an enabling environment for developing countries to engage in global value chains and benefit from economic globalization. OECD’s evolving accounting frameworks and tables
To facilitate the measurement of trade and economic globalization, the OECD has developed evolving accounting frameworks and tables.
These frameworks provide important tools for analyzing global value chains and understanding the allocation of value added across countries. One of these frameworks is the Inter-Country Input-Output (ICIO) system, which enables the construction of a global supply and value chain database.
This system captures the linkages between industries and countries, allowing for a comprehensive analysis of production networks and the impact of policies on these networks. The ICIO system provides valuable insights into the interdependencies of economies and the flow of intermediate inputs in global value chains.
The OECD also develops economic globalization indicators, which include measures of international trade, foreign direct investment, and global value chains. These indicators provide policymakers with a comprehensive assessment of a country’s integration into the global economy and its role in global production networks.
In addition to these frameworks, the OECD works on advancing national accounting systems to better capture the complexity of global value chains. National input-output tables and supply-use tables are being expanded to include more detail on the input-output relationships between industries and the flow of intermediate inputs.
This comprehensive dataset enables a more accurate estimation of value added at each step of the production process, addressing the double-counting issue associated with traditional trade statistics. Example of TiVA – Apple’s global value chain
Apple’s manufacturing process and global value chain
Apple, one of the world’s largest technology companies, provides a prime example of a complex global value chain.
From design to assembly, Apple’s products undergo multiple stages involving inputs from various countries. The design stage takes place at Apple’s headquarters in Cupertino, California.
Innovative ideas are transformed into digital designs that drive the production process. These designs are then shared with manufacturing partners, such as Foxconn, located in countries like China and Taiwan.
The assembly of Apple products, such as iPhones and MacBooks, takes place predominantly in China. At Foxconn’s factories, workers assemble the various components, including screens, processors, batteries, and casings, into the final products.
These components are sourced from suppliers located in different parts of the world, further illustrating the intricacies of Apple’s global value chain.
Complexity and the need for TiVA accounting system
The complexity of Apple’s global value chain highlights the need for a comprehensive accounting system like TiVA. Without such a system, it would be challenging to accurately measure the value added by each country at each step of the production process.
For instance, consider the process of assembling an iPhone. Inputs from various countries are crucial for the final product.
The screen may be manufactured in Japan, the processor in the United States, and the battery in South Korea. These components are then shipped to China for assembly.
Traditional trade statistics would count the exports of these components as separate items, potentially leading to double counting. However, TiVA enables the allocation of value added to each country involved in the production process.
Using this method, the value added by Japan, the United States, South Korea, and China can be accurately identified and accounted for. This more detailed and accurate measurement allows for a better understanding of the contributions made by each country in Apple’s global value chain.
In conclusion, TiVA provides a valuable statistical method for understanding the sources of value added in global trade. The OECD’s analysis of policies for global value chains and evolving accounting frameworks further enhance our understanding of the interconnectedness of economies and the complexities of global production networks.
Through an example like Apple’s global value chain, we can see the importance of TiVA in accurately measuring the contributions made by each country along the various stages of production. This knowledge is essential for policymakers and researchers to make informed decisions and policies that support economic growth and development.