FDI and Trade in GVCs · 2015. 8. 4. · 0 FDI and Trade in GVCs Preliminary Findings on Investment and Value Added Trade in the Global Economy Masataka Fujita, Head, Investment Issues

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FDI and Trade in GVCs

Preliminary Findings on Investment and Value Added Trade in the Global Economy

Masataka Fujita, Head, Investment Issues and Trends Branch Division on Investment and Enterprise UNCTAD Geneva, 9 April 2013

Latin America’s entry in the global offshore service industry

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▪ Value added trade in the global economy

▪ GVCs: the trade-investment nexus

▪ The development impact of GVCs

▪ The way forward: a policy analysis agenda

Contents

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Value Added Trade: how does it work? Domestic Value Added in exports

Foreign Value Added incorporated

Country A

Country B

Country C

Country D

Raw material extraction Processing Manufacturing Final

demand

Value chain

Participating countries Gross

exports Domestic

Value Added

2 2

26 24

72 46

100 72

2

2 24

24 2 46

+

+ + = 72

= 26

∑

Double-counting

0

2

26

28

3

How much value added does global trade actually generate?

Global value added in trade, 2010

Source: UNCTAD-EORA GVC Database, UNCTAD estimates.

Global gross exports “Double counting” (foreign value added

in exports)

Value added in trade

~19 ~5

~14 28%

$ Trillions ESTIMATES

4

Which countries use more imported value added to generate their exports?

Foreign value added in trade, by region, 2010

Source: UNCTAD-EORA GVC Database.

14%

13%

14%

21%

31%

21%

16%

11%

30%

27%

14%

22%

18%

11%

39%

31%

28%

Least Developed Countries

Transition Economies

South America

Caribbean

Central America

Latin America and Caribbean

West Asia

South Asia

East and South-East Asia

Asia

Africa

Developing Economies

Japan

United States

EU

Developed Economies

Global

Memorandum item:

Developing country average

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Which sectors have the most segmented value chains?

Share of foreign value added in exports, by sector, 2010


9.6%

29.4%

14.2%

Primary

Secondary

Tertiary

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Which industries have the most segmented value chains?

Share of foreign value added in exports, top 10 industries and top 5 services industries, 2010

Source: UNCTAD-Eora GVC Database. Note: Based on 42 industries at various levels of industry classification.

1

2

3

4

5

6

7

8

9

10

..

27

28

30

31

38 Finance

Post and telecommunications

Electricity, gas and water

Research and development

Construction

….

Metal and metal products

Manufacture of basic chemicals

Rubber and plastic products

Manufacture of other transport equipment

Manufacture of electrical machinery and apparatus n.e.c.

Manufacture of man-made fibres plastics and synthetic rubber

Coke, petroleum products and nuclear fuel

Manufacture of radio, television and communication equipment

Manufacture of motor vehicles, trailers and semi-trailers

Manufacture of office, accounting and computing machinery

0 10 20 30 40 50%

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How much does value added trade contribute to countries’ GDP?

Domestic value added in trade as a share of GDP, by region, 2010


26%

30%

14%

27%

22%

16%

37%

18%

24%

25%

30%

28%

13%

12%

26%

18%

22%

Least Developed Countries Memorandum item:

Transition Economies

South America

Caribbean

Central America

Latin America and Caribbean

West Asia

South Asia

East and South-East Asia

Asia

Africa

Developing Economies

Japan

United States

EU

Developed Economies

Global

Developing country average

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Which regions participate more in GVCs?

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Which countries show the highest GVC participation?

10

Contents





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What is the role of TNCs in shaping value added trade patterns?

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

Source: UNCTAD estimates, based on WIR12 (table I.8); BEA; EFIGE; Altomonte et al. 2012.

~15 ~6.3

~2.4

~6.3

ESTIMATES $ Trillions

~19 ~4

Global trade in goods and services

Non-TNC trade

All TNC-related trade

Intra-firm trade

NEM-generated trade

TNC arm's length trade

Total trade within the international production networks of TNCs:

~80%

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What is the role of TNCs in shaping value added trade patterns?

Source: UNCTAD-EORA GVC Database, UNCTAD FDI Database.

7% 11% 7%

71%

43%

26%

22%

46%

64%

Gross exports

Value added inputs to exports

Inward FDI stock

Services

Manufacturing

Primary sector

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How does FDI affect countries’ GVC participation? Correlation between levels of inward FDI stock and GVC participation

Source: UNCTAD-EORA GVC Database, UNCTAD FDI Database, UNCTAD analysis (based on datapoints for 187 countries over 20 years).

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How does FDI affect countries’ GVC participation?

Foreign value added in export GVC participation

Contribution of value added trade to GDP

18%

17%

24%

34%

46%

48%

54%

58%

21%

24%

30%

37% 1st quartile (Countries with high FDI stock relative to GDP)

2nd quartile

3rd quartile

4th quartile (Countries with low FDI stock relative to GDP)

Key value added trade indicators (median values), by quartile of FDI stock relative to GDP, 2010

Source: UNCTAD-EORA GVC Database, UNCTAD FDI Database, UNCTAD analysis (based on 180 countries).

15

Contents





16

What is the impact of value added trade and GVCs on development?

78

910

11G

DPp

c

10 12 14 16 18 20GVC participation

Developed Countries - logsGVC Participation vs GDP per Capita

46

810

12G

DPp

c

10 12 14 16 18 20GVC participation

Developing Countries - logsGVC Participation vs GDP per Capita

Correlation between growth in GVC participation and GDP per capita

Source: UNCTAD-EORA GVC Database, UNCTAD analysis (based on datapoints for 187 countries over 20 years).

17

What is the impact of value added trade and GVCs on development?

GDP per capita growth rates for countries with high/low growth in GVC participation, and high/low growth in domestic value added share, 1990-2010

* Data for 125 developing countries, ranked by growth in GVC participation and domestic value added share; high includes the top two quartiles of both rankings, low includes the bottom two; GDP per capita growth rates reported are median values for each quadrant.

Source: UNCTAD.

GVC participation growth rate

Growth of the domestic value added component of exports

Low

Low

High

High

+ 2.2% + 3.4%

+ 0.7% + 1.2%

ʺIntegrating in GVCsʺ

ʺIncreasing dmoestic value addedʺ

+ n.n% median GDP per capita growth rates =

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What different GVC development paths can be distinguished?

Source: UNCTAD.

+ 2.2% + 3.4%

+ 0.7% + 1.2%

ʺIntegrating in GVCsʺ

ʺIncreasing domestic value addedʺ

ʺPreparingʺ

ʺUpgradingʺ

ʺEngagingʺ ʺCompetingʺ

ʺConvertingʺ ʺLeapfroggingʺ

CONCEPTUAL

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Major preliminary findings

Global investment and trade are inextricably intertwined through the international production network of firms…

GVCs are responsible for the growing significance of “double counting” in global trade figures

GVCs make extensive use of services (almost 50% of value added inputs to exports is contributed by service sector activities)

The majority of developing countries, including the poorest, are increasingly participating in GVCs

Countries with a higher presence of FDI relative to the size of their economies tend to have a high level of participation in GVCs (and a greater relative share in value added trade compared to their share in global exports)

GVC links in developing countries can play an important role in economic growth

There appear to be a number of distinct GVC development paths for developing countries

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Contents





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The way forward: a policy analysis agenda

Some key questions to answer:

▪What are the implications of new insights on GVCs for investment and trade theory?

▪What are the drivers and determinants of investment in GVCs?

▪Should developing countries adopt specific policies in their development strategy to increase GVC participation?

▪If so, under what circumstances, with what criteria?

▪What policies can maximize the benefits and minimize the negative effects of GVCs?

▪…

UNCTAD will aim to answer these

and other questions in the

World Investment Report 2013 to be

launched on 26 June

FDI and Trade in GVCs · 2015. 8. 4. · 0 FDI and Trade in GVCs Preliminary Findings on Investment and Value Added Trade in the Global Economy Masataka Fujita, Head, Investment Issues

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