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Measuring Trade in Value-Added: Improving Metrics for Better Policy Making

This document discusses the need for better metrics to measure trade in value-added, in order to address issues such as bilateral trade imbalances, supply chain shocks, and the impact of trade on jobs. It highlights the importance of interconnected input-output tables and international collaboration to institutionalize estimates of trade in value-added. The document also outlines the current initiatives and data sharing efforts between OECD, IDE-JETRO, and WTO, and proposes a work plan to improve the nature of assumptions and estimates relating to bilateral trade flows, services, firm-level data, intangibles, and property income flows.

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Measuring Trade in Value-Added: Improving Metrics for Better Policy Making

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  1. Measuring Trade in Value-AddedOECD National Accounts Working Party Meeting Paris October 2011 Contact: nadim.ahmad@oecd.org

  2. Trade in Value-Added • Increasing recognition that gross estimates of trade may create ‘misleading perceptions’ (Pascal Lamy), and imperfect policies in a number of areas, including: • dealing with bilateral trade imbalances • dealing with the impact of macro-economic shocks on supply-chains • understanding the importance of trade to jobs • Leading to a call for new metrics that better respond to these issues.

  3. The iPod Distribution of the value added The Apple iPod = 299$ of Chinese ‘exports’ to US • 299 US$ • 75$ profit to US (Apple) • 73$ whls/retail US (Apple) • 75$ to Japan (Toshiba) • 60$ 400 parts from Asia • 15$ 16 parts from the US • 2$ assembly by China 3 http://blogs.computerworld.com/node/5724

  4. Responding to needs • IO tables provide a means to respond to these developments by measuring interconnectedness of trade and trade in value-added terms. • A number of initiatives have been launched using interconnected IO tables ( a world IO table). • Including a two-year project of the OECD (STD/TAD/STI).

  5. International Collaboration • Various initiatives pooling resources to identify best practices for allocation of bilateral trade flows within IO tables. • But recognition: • that a long-term approach is needed to ‘institutionalise’ estimates of trade in value-added. • And that its international nature requires the involvement of an international agency or international consortia. • Formalising collaboration with WTO and IDE-JETRO, and exploring closers links with USITC.

  6. Indicator & data sharing with IDE-JETRO and WTO in TiVA Project Common to WTO and the OECD: publically available • Value added in trade “headline” indicator: • bilateral flows; • by sector to the degree possible. Shared by OECD and IDE-JETRO Input-Output tables, methodological assumptions and bilateral trade flow data OECD “analytical” data on trade in services, trade by enterprise, intangibles and income flows. OECD only

  7. What do we know now: Import contents of exports (2005) Source: OECD Inter-country inter-industry model (March 2011)

  8. Import contents of exports Source: OECD Inter-country I-O model, 2011

  9. And globalisation continues apace • As production processes continue to become more fragmented and chains become more interconnected. • Processing trade increasing in China. • Driven by technological advancement, reduced transaction costs and trade policy reform. • Reinforcing the need for on-going and robust estimates

  10. Work Plan • Estimates can be produced now, but necessarily require assumptions relating to BTD IO flows. • Much of the work over next two years will be in improving the nature of these assumptions, by: • Developing improved estimates of BTD by Industry and End-Use • Improving BTD by services • Using firm-level micro data • Decomposing value-added into ‘labour’ and ‘capital’ flows. • Contribution of intangibles (R&D and software) • And investigating the scope to trace property income flows.

  11. Tangibles vs. intangibles Investment in fixed and intangible assets as a percentage of GDP, 2006 Source: OECD STI Scoreboard 2011. Data on intangible investment are based on COINVEST [www.coinvest.org.uk] and national estimates by researchers. Data for fixed investment are OECD calculations based on OECD, Annual National Accounts and EU KLEMS Databases, March 2010.

  12. What can WPNA do? • Support the initiative and related developments especially in: • Bilateral trade flows • Measurement of IPP investment by industry • Continue to improve comparability of employment estimates with value-added. • More detailed IO tables? • Breakdowns by Foreign/domestic ownership?

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