VALUE ADDED TRADE RESTRICTIVENESS INDEXES. MEASURING PROTECTION WITH GLOBAL VALUE CHAINS

Transcription

1 VALUE ADDED TRADE RESTRICTIVENESS INDEXES. MEASURING PROTECTION WITH GLOBAL VALUE CHAINS Alessandro Antimiani 1 Ilaria Fusacchia 2 Luca Salvatici 3 1 EU Commission alessandro.antimiani@ec.europa.eu 2 Roma Tre University ilaria.fusacchia@uniroma3.it 3 Roma Tre University, and Rossi-Doria Centre for Economic and Social Research luca.salvatici@uniroma3.it Fifth Workshop on GVC Updating our Knowledge on Global Value Chains Rome, 22 March 2018

2 Introduction GVCs AND TRADE PROTECTION Global supply chains are reshaping trade policy (Blanchard et al., 2016) GVCs are not a new phenomenon (1970s, world-system tradition of chain research), however their great expansion has changed the conceptual framework to analyze trade and its empirical measurement. A new paradigm for trade: where is the value added created and how is it traded among countries/sectors? A matter of fact: intermediate goods drive world trade. Imports for exports Implication: imports are an important channel through which fostering a country s competitiveness; tariffs on imports turn out to be tax on exports. Domestic value added content of imports With circular trade, upstream domestic producers (which export inputs reimported back after further processing abroad) can be affected by their own tariffs. Global interdependences alter countries incentives to impose import protection. 2

3 Protection and GVCs: how far we have come TRADE POLICY GROWTH AND RESILIENCE OF GVCs Small levels of tariffs still matter with int l fragmentation of production due to tariff amplification (Yi, 2003): Tariffs are repeated when borders are crossed several times (with high fragmentation low tariffs may add up to a significant increase in the price of final goods), and Tariffs are applied on the full value of exports, including on imported inputs and tariffs previously paid. GVC-related trade is particularly sensitive to border protection. Moreover, chain effects impact all the linked production activities, spanned across different countries. GVCs call for a more coherent view of trade and trade-related policies. Aim: to develop a framework to assess trade protection in a context on GVC, including both the direct effect of border restrictions (on the exporter) and the indirect effects (on the backwardly linked countries). 3

4 Methodological framework How to measure protection? Major issues in summary statistics in international trade policy: how to summarize different forms of trade policies (conversion problem) over thousands different tariff lines (aggregation problem) in a single figure (Cipollina and Salvatici, 2007). Weighting schemes (import volumes, production or consumption shares, world exports, reference groups ) suffer from an endogeneity bias : Highly taxed imports tend not to be imported (zero weight in the index). Moreover, tariffs have greater effect on trade volume for imports in relative elastic demand (but it is precisely these goods whose weights fall fastest) Equivalence measures use a theoretical-based aggregation procedure, defining an ideal aggregator with respect to a well-defined economic question (Anderson and Neary, 2005). Main idea: give a uniform tariff equivalent of a non-uniform tariff structure yielding the same value in terms of a specific variable (TRI, MTRI, DERP, OERP, etc ) The Value Added Trade Restrictiveness Index (VATRI) is equivalent to the actual policies in terms of the chosen impact on value added components. A G.E. framework is needed. 4

5 THE GENERAL EQUILIBRIUM MODEL THE BEHAVIORAL APPROACH TO TARIFF AGGREGATION EXTENDING THE EQUIVALENCE APPROACH TO A VALUE-ADDED FRAMEWORK Set up a small tariff-distorted competitive economy with CRS and a representative agent. The indirect trade utility function (Woodland, 1980) summarizes all consumption and production decisions within the economy: o maximum level of utility a trading economy can obtain, when the restricted profit functions plus the lumpsum income from abroad is substituted for the disposable income in the indirect utility function In competitive equilibrium, unit costs equals prices, then the unit cost function can be substituted for the p vector. o Generalization of Roy's Identity: the derivatives of the indirect factor trade utility function with respect to factor prices are proportional to the factor content of net imports (Neary and Schweinberger, 1986). Import demand factor content functions (duality): more on this price of factor k in country r DIRECT FACTOR REQUIREMENT COEFFICIENTS: cost-minimizing factor k per unit of output in sector j country r 5

6 The GE model (cont.) We consider total factor requirements (direct + indirect) in order to compute the actual factor content of exports and imports (Trefler and Zhu, 2010): country s exports to the world country s imports MULTIPLIER MATRIX: total output directly or indirectly required to produce one unit of output o Assumptions: separability in the production function (primary factors/intermediates), and fixed intermediate input proportions. We focus on imports and decompose bilateral imports according to where the VA is generated (Foster-McGregor and Stehrer, 2013), using value-added multipliers (physical coefficients by factor prices and sum over all factors): Such an aggregate decomposition (if compared to descriptive analyses on GVC), in a G.E. context allows to obtain a much more detailed (and still simple) framework for analyzing the systemic, global effects of trade policy on production networks. 6

7 Definition of benchmarks for VATRI THE CONTENT OF BILATERAL FLOWS We define three true benchmarks (against which restrictiveness is measured) accordingly to where the value added embodied in imports originates: i. Direct exporter value added, to correct traditional metric in gross values (FVA_b). ii. Value added which is re-imported back after further processing abroad, to assess the impact on domestic upstream exporting firms (DVA). iii. Indirect foreign value added originated in third countries, to catch indirect effects of bilateral protection (FVA_i). 7

8 Value Added Trade Restrictiveness Indexes (VATRIs) Definition of the uniform tariff equivalents: uniform tariff that, if imposed on imports instead of the existing structure of protection, would leave i. the direct exporter value added initially distorted prices int l prices equilibrium at the point of reference ii. the reflected value added iii. the indirect foreign value added at its current level. Inter l prices are expressed as a function of the tariff vector (T) in order to allow for endogenous world prices (Salvatici, 2001; Antimiani and Salvatici, 2005). 8

9 Implementation issues Operationalize the VATRIs The implementation of the equivalent index requires explicit model structures and/or estimated parameters for their implementation. VATRIs are operationalized in CGE using the GTAP model of global trade Main features of GTAP: o o o Demand: CDE _ price and income elasticities from literature Production: CES for primary factors and intermediates, Leontief for the upper nest Trade: Armington assumption differentiates products by origin We introduce three main extensions: I. A new nest in the production structure (Armington assumption applied on demand for imports of the specific agent); II. III. The value added decomposition of bilateral trade flows; Uniform tariff equivalents. 9

10 GTAP-MRIO DATABASE Data GTAP Data Base, a globally consistent database representing the world economy. Version 9 includes 140 countries/regions and 57 sectors for three reference years (2004, 2007, and 2011). The standard GTAP does not distinguish total bilateral trade data by end use (intermediate/final), but contains total imports by agent (firms, h.h.,government,cgds). To have the four-dimensional information level on source and destination country-sector, we use an expanded GTAP Data Base which attributes import sources for intermediate and final demand to individual source countries and sectors (BEC method). GTAP Data Base aggregation: 6 regions (EU, US, China, High income, Middle income, Low income countries) and all GTAP sectors. 10

11 EU imports from US and China Table 1a) EU's imports from US (world prices), gross and reflected. Gross imports (US$million) DVA (share) Total imports ,8 Services ,6 Chemicals ,3 Machinery ,9 MotorVehi ,1 Petroleum ,2 Metals ,7 ElecEquip ,1 Manufacture ,2 Extraction ,6 Wood ,3 Food ,7 Agriculture ,9 Textiles ,0 Table 1b) EU's imports from China (world prices), gross and reflected. Gross imports (US$million) DVA (share) Total ,9 ElecEquip ,4 Textiles ,4 Machinery ,8 Metals ,7 Services ,4 Chemicals ,0 Manufacture ,1 Wood ,6 MotorVehi ,7 Food ,3 Petroleum ,2 Agriculture ,8 Extraction ,3 USA: Services represent almost 40% of total imports. Other large categories: Chemicals, Machinery and Motor vehicles account for 37%. China: Three sectors (Electronic s, Machinery, and Textiles) account for slightly less than 60%. The reflected component is not negligible in some sectors. Differences at the sector level in terms of imports for exports. Some sectors (e.g., Electronics, Chemicals, and Motor vehicles) heavily rely on imported inputs. Figure 1a) The VA content of EU's imports from US. Figure 1b) The VA content of EU's imports from China. Source: Authors calculation using GTAP-VA (baseline: 2011) 11

12 EU s tariffs on imports from US and China Textiles Wearing Apparel Leather Lumber Petroleum & Coke Chemical Rubber Products Non-Metallic Minerals Non-Ferrous Metals Fabricated Metal Products Motor Motor vehicles and parts Transport Equipment Electronic Equipment Other Machinery & Equipment Other Manufacturing USA China % Ad valorem rate, 2011 Source: GTAP Data Base Textiles imports from China face high tariffs to get into the EU market. US exports in Motor vehicles are also highly taxed by EU. 12

13 Simulation and results THE SIMULATION: A newly introduced variable, tr (r,s), sector-generic tariff applied on imports from region r into region s is swapped (exogenous vs endogenous) with the component of value added we are interested in. Original heterogeneous tariffs are shocked to 0. 13

14 European Union 28 imports from China Agriculture 0,01 0,00 0,00 0,00 0,00 0,00 0,01 0,01 4,00 Extraction 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Food 0,11 0,02 0,08 0,01 0,07 0,04 0,10 0,09 11,00 Textiles 1,74 1,12 1,66 0,98 1,12 0,93 1,61 1,79 10,00 Wood 0,03 0,02 0,02 0,01 0,02 0,05 0,03 0,03 1,00 Petroleum 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Chemicals 0,30 0,29 0,33 0,28 0,37 0,51 0,31 0,31 4,00 Metals 0,26 0,22 0,17 0,22 0,36 0,34 0,25 0,26 3,00 MotorVehi 0,11 0,18 0,12 0,10 0,09 0,09 0,11 0,11 3,00 ElecEquip 0,26 0,32 0,35 0,45 0,29 0,18 0,28 0,27 1,00 Machinery 0,49 0,64 0,47 0,51 0,55 0,52 0,50 0,49 2,00 Manufacture 0,14 0,06 0,07 0,04 0,07 0,09 0,12 0,12 2,00 European Union 28 imports from United States Ad Tradeweighted Uniform tariff equivalents valorem tariff average (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) τ_fvab τ_dva τ_fvai τ_fvatot τ_gross Country/region, origin of VA (chn) (eu) (usa) (hics) (mics) (lics) Sector-generic 3,46 2,88 3,28 2,61 2,95 2,76 3,32 3,49 3,44 Ad Tradeweighted Uniform tariff equivalents valorem tariff average (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) τ_fvab τ_dva τ_fvai τ_fvatot τ_gross Country/region, origin of VA (usa) (eu) (chn) (hics) (mics) (lics) Sector-generic 1,90 1,88 1,74 1,85 1,94 1,90 1,89 1,89 1,28 Agriculture 0,05 0,01 0,01 0,01 0,01 0,03 0,04 0,04 3,00 Extraction 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Food 0,19 0,09 0,04 0,09 0,12 0,07 0,18 0,17 13,00 Textiles 0,08 0,08 0,16 0,06 0,07 0,04 0,08 0,08 7,00 Wood 0,01 0,00 0,01 0,00 0,00 0,00 0,01 0,01 0,00 Petroleum 0,06 0,07 0,03 0,37 0,48 0,92 0,12 0,13 2,00 Chemicals 0,49 0,57 0,33 0,47 0,44 0,42 0,48 0,48 2,00 Metals 0,19 0,19 0,15 0,18 0,23 0,14 0,19 0,19 2,00 MotorVehi 0,39 0,54 0,53 0,39 0,33 0,15 0,39 0,39 3,00 ElecEquip 0,04 0,05 0,14 0,06 0,05 0,02 0,05 0,05 1,00 Machinery 0,35 0,24 0,30 0,19 0,17 0,08 0,32 0,32 1,00 Manufacture 0,03 0,02 0,02 0,02 0,02 0,01 0,03 0,03 1,00 Trade-weighted average scheme of aggregation (column X) is not reliable as an approximation of the protection on VA. Gross and direct FVA show similar level of protection. However, lower sector weights are obtained for foreign-input intensive sector (e.g., Petroleum and Textiles). DVA faces a significant level of protection: impact on upstream domestic firms exporting intermediate inputs processed abroad and then re-imported (ex. Chemicals and Machinery). The uniform tariff required to maintain China s VA directly exported to EU (3.46%), is higher than the value which maintains constant its indirectly exported VA (1.74%). This reflects the sectoral specialization involved in the different trade links: Textiles is a major direct exporting sector for China (high levels of nominal protection). Chinese VA reaching EU market through US concerns sectors less taxed in US (e.g., Motor vehicles). Conversely, US is less taxed when exporting bilaterally to EU, whereas US inputs used by Chinese exports are negatively impacted by the overall EU tariff structure towards China. more on this 14

15 Conclusions Policy implications: Bilateral nominal tariffs and trade flows are not sufficient to get an accurate picture of the impact of protectionist measures through backward and forward linkages. The value of the index for the DVA (reflected) component is indicative of the harm inflicted to domestic producers providing inputs to the exporting sectors of the foreign country. This shows the beggar thyself content of protectionism. The value added is exported both directly and indirectly: the importer s tariffs towards third countries also play a (very) significant role in assessing the overall protection faced. Benefits or costs to be incurred even if there are not any actual changes in bilateral trade policies. Main contribution: Development of new index for trade restriction synthesizing the upstream/downstream linkages and the protectionist measures on different sectors. The VATRI framework can be easily applied to other indicators of GVC (position, participation, value-added exports to gross exports, VS, ). Main limitations: Assumptions underlying the model (perfect competition, CRS, representative firms, ) Data: no processing trade, NTBs Calculation: no double-counting. 15

16 Thank you for your attention! 16

17 APPENDIX 17

18 Use of bilateral imports European Union 28 imports from China China imports from European Union 28 Bilateral imports for domestic market Bilateral imports used to produce exports Bilateral imports for domestic market Bilateral imports used to produce exports final imp interm. imp total final exp interm. exp total sector (I) (II) (III) (IV) (V) (VI) primary 26,7 64,9 91,6 4,4 4,0 8,4 food 73,8 23,4 97,2 1,4 1,4 2,8 textiles 80,3 16,5 96,8 1,6 1,6 3,2 manufacture 41,7 46,2 87,9 5,2 6,9 12,1 motor vehi 48,7 40,6 89,4 6,1 4,6 10,6 services 53,5 40,2 93,8 2,6 3,6 6,2 total 50,6 39,7 90,3 4,3 5,5 9,7 final imp interm. imp total final exp interm. exp total sector (I) (II) (III) (IV) (V) (VI) primary 31,7 48,5 80,2 11,1 8,6 19,8 food 46,6 41,9 88,5 6,8 4,7 11,5 textiles 36,0 30,2 66,2 22,8 11,0 33,8 manufacture 24,3 52,2 76,5 11,2 12,3 23,5 motor vehi 52,5 38,8 91,3 4,2 4,4 8,7 services 35,3 50,1 85,4 7,3 7,3 14,6 total 32,5 48,4 80,9 9,3 9,7 19,1 United States imports from European Union 28 European Union 28 imports from United States Bilateral imports for domestic market Bilateral imports used to produce exports Bilateral imports for domestic market Bilateral imports used to produce exports final imp interm. imp total final exp interm. exp total sector (I) (II) (III) (IV) (V) (VI) primary 24,9 65,2 90,1 4,0 5,9 9,9 food 55,6 40,0 95,6 1,9 2,5 4,4 textiles 48,1 44,1 92,2 2,8 5,0 7,8 manufacture 41,2 46,9 88,0 4,0 8,0 12,0 motor vehi 66,0 26,8 92,8 3,7 3,5 7,2 services 24,4 69,5 93,9 2,2 3,9 6,1 total 39,9 50,8 90,8 3,3 5,9 9,2 final imp interm. imp total final exp interm. exp total sector (I) (II) (III) (IV) (V) (VI) primary 40,8 52,4 93,3 3,4 3,3 6,7 food 52,5 42,6 95,1 2,4 2,5 4,9 textiles 32,5 56,4 88,9 5,5 5,6 11,1 manufacture 28,6 57,0 85,6 6,2 8,3 14,4 motor vehi 36,1 51,5 87,6 7,1 5,4 12,4 services 38,5 53,9 92,3 3,2 4,4 7,7 total 33,6 55,0 88,6 5,0 6,4 11,4 18

19 Bilateral intermediate imports decomposition (based on Wang, 2013) Country r s intermediate imports from r are expressed as: Bilateral imports decoposition Final consumption Intermediates for exports Final imports Imports of intermediates domestically rocessed and consumed Exports of final products Exports of intermediates 19

20 Bilateral flows CHN-USA (gross values) USA CHN intermediates tot. Int. final primary food textiles manufacturmotor vehi services primary food textiles manufactur motor vehi services CHN USA intermediates tot. Int. final primary food textiles manufacturmotor vehi services primary food textiles manufactur motor vehi services

21 The content of bilateral imports European Union 28 imports from United States European Union 28 imports from China sector (US $, mio) Gross imports Domestic value added (%) Foreign bilateral value added Foreign indirect value added sector (US $, mio) Gross imports Domestic value added (%) Foreign bilateral value added Foreign indirect value added primary ,93 90,84 7,22 food ,22 88,11 9,67 textiles ,19 81,83 14,99 manufacture ,00 78,99 18,01 motor vehi ,47 78,14 17,39 services ,49 93,53 4,98 total ,54 84,80 12,67 primary ,81 93,28 5,91 food ,29 87,34 11,37 textiles ,01 83,86 14,14 manufacture ,87 75,46 21,67 motor vehi ,59 77,29 18,12 services ,53 88,93 9,53 total ,62 78,51 18,87 sector United States imports from European Union 28 (US $, mio) Gross imports Domestic value added Foreign bilateral value added Foreign indirect value added primary ,31 91,34 7,35 food ,44 89,91 8,65 textiles ,58 86,64 11,78 manufacture ,31 81,39 16,30 motor vehi ,27 82,65 14,08 services ,41 92,16 6,43 total ,11 85,30 12,59 (%) sector China imports from European Union 28 (US $, mio) (%) Gross imports Domestic value added Foreign bilateral value added Foreign indirect value added primary ,75 91,34 7,90 food ,84 89,91 9,25 textiles ,61 86,64 10,76 manufacture ,79 81,39 16,82 motor vehi ,09 82,65 15,26 services ,76 92,16 7,07 total ,69 83,62 14,69 21 Source: Authors calculation on GTAP database

22 The GE model A sketch of the behavioral approach to tariff aggregation: Original set up a small tariff-distorted competitive trading economy with constant returns to scale and a representative consumer. Import-volume-equivalent uniform tariff (MTRI): import volume function calculated for the reference period (= ) international price vector To what extent do trade distortions limit imports from the rest of the world? initially distorted price vector equilibrium at the reference period factor endowments gives the uniform tariff which yields the same volume (at world prices) of tariffrestricted imports as the initial tariffs. The MTRI assumes exported goods entirely produced by the exporting economy. 22

23 Deriving Marshallian import demand factor content functions Generalization of Roy's Identity: the derivatives of the indirect factor trade utility function with respect to factor prices are proportional to the factor content of net imports, the constant of proportionality being the marginal utility of income. Then, substituting trade utility function: for p in the indirect utility function, define the indirect factor Differentiating with respect to : The generalization of Roy s Identity implies: By Shephard s Lemma, the derivative of the cost function with respect to the factor prices gives the conditional demand for input, then: 23

24 Data (cont.) Building a GTAP-MRIO Data Base INPUT PROCESS OUTPUT Processing the UN COMTRADE data from the TASTE Database Application of concordances to map between product categories at the Harmonized System (HS) classification, the Broad Economic Categories (BEC), and the end use categories of the System of National Accounts (SNA) framework IMP (h,s,r) HS-BEC IMP (h,b,s,r) BEC-USE IMP (h,b,u,s,r) HS-GTAP IMP (h,i,b,u,s,r) Reformatting the trade data for compatibility with the GTAP Data Base Further details: GTAP Final Report on Public procurement data base extension and modelling modifications for analysis purposes (September 7, 2015 ) 24

25 GVC participation indexes (based on Wang, 2016) Sector Downstream (GDP) decomposition (US $, mio) total value added (GDP) pure domestic (%) directly exported value added indirectly exported value added European Union 28 Upstream (final demand) decomposition (US $, mio) (%) GVC participation index indirect direct value Sector total final demand pure domestic value added forward backward total added imports imports primary ,59% 12,90% 1,50% primary ,77% 15,70% 8,53% 1,50% 8,53% 10,04% food ,35% 9,00% 0,65% food ,77% 3,81% 10,43% 0,65% 10,43% 11,07% textiles ,17% 14,49% 2,35% textiles ,05% 23,42% 15,53% 2,35% 15,53% 17,88% manufacture ,42% 23,56% 5,01% manufacture ,55% 13,29% 19,16% 5,01% 19,16% 24,17% motor vehi ,09% 27,34% 2,57% motor vehi ,80% 8,96% 18,24% 2,57% 18,24% 20,82% services ,65% 7,32% 1,03% services ,88% 2,04% 8,08% 1,03% 8,08% 9,11% Sector Downstream (GDP) decomposition (US $, mio) total value added (GDP) pure domestic United States Upstream (final demand) decomposition (%) (US $, mio) (%) indirectly exported Sector total final demand pure domestic value added directly exported value added direct value added imports indirect value added imports GVC participation index forward backward total primary ,83% 28,60% 4,57% primary ,42% 26,92% 2,67% 4,57% 2,67% 7,24% food ,95% 11,03% 1,02% food ,49% 16,96% 2,54% 1,02% 2,54% 3,57% textiles ,11% 11,08% 2,80% textiles ,24% 42,82% 9,93% 2,80% 9,93% 12,74% manufacture ,55% 23,45% 6,00% manufacture ,53% 35,57% 8,90% 6,00% 8,90% 14,90% motor vehi ,87% 24,58% 3,55% motor vehi ,03% 35,74% 9,22% 3,55% 9,22% 12,78% services ,13% 5,04% 0,82% services ,69% 6,19% 1,12% 0,82% 1,12% 1,94% Sector Downstream (GDP) decomposition (US $, mio) total value added (GDP) pure domestic China Upstream (final demand) decomposition (%) (US $, mio) (%) GVC participation index indirectly indirect direct value exported Sector total final demand pure domestic value added forward backward total added imports value added imports directly exported value added primary ,19% 16,81% 2,01% primary ,10% 7,65% 1,25% 2,01% 1,25% 3,25% food ,05% 11,77% 1,18% food ,75% 13,24% 2,01% 1,18% 2,01% 3,19% textiles ,51% 54,43% 5,05% textiles ,40% 16,15% 3,46% 5,05% 3,46% 8,51% manufacture ,99% 32,27% 5,74% manufacture ,54% 28,86% 6,60% 5,74% 6,60% 12,34% motor vehi ,41% 15,34% 2,25% motor vehi ,45% 24,78% 5,77% 2,25% 5,77% 8,02% services ,53% 9,11% 1,36% services ,81% 10,15% 2,04% 1,36% 2,04% 3,40% 25

26 GVC participation indexes (based on Wang, 2016)_cont. Sector Downstream (GDP) decomposition (US $, mio) total value added (GDP) pure domestic High income countries Upstream (final demand) decomposition (%) (US $, mio) (%) GVC participation index indirectly indirect direct value exported Sector total final demand pure domestic value added forward backward total added imports value added imports directly exported value added primary ,83% 18,97% 3,20% primary ,97% 26,15% 2,88% 3,20% 2,88% 6,08% food ,52% 10,57% 0,91% food ,84% 22,14% 3,02% 0,91% 3,02% 3,93% textiles ,53% 27,76% 9,72% textiles ,86% 53,15% 10,99% 9,72% 10,99% 20,70% manufacture ,92% 39,85% 11,23% manufacture ,17% 35,69% 9,14% 11,23% 9,14% 20,38% motor vehi ,26% 44,04% 3,70% motor vehi ,76% 36,78% 9,46% 3,70% 9,46% 13,16% services ,07% 8,39% 1,54% services ,74% 8,75% 1,51% 1,54% 1,51% 3,05% Sector Downstream (GDP) decomposition (US $, mio) total value added (GDP) pure domestic Middle income countries Upstream (final demand) decomposition (%) (US $, mio) (%) GVC participation index indirectly indirect direct value exported Sector total final demand pure domestic value added forward backward total added imports value added imports directly exported value added primary ,18% 12,94% 1,88% primary ,88% 7,76% 1,36% 1,88% 1,36% 3,24% food ,92% 10,17% 0,90% food ,76% 11,27% 1,97% 0,90% 1,97% 2,87% textiles ,68% 26,53% 2,80% textiles ,01% 26,38% 5,61% 2,80% 5,61% 8,40% manufacture ,09% 31,52% 10,39% manufacture ,49% 33,71% 8,80% 10,39% 8,80% 19,19% motor vehi ,29% 21,22% 2,48% motor vehi ,50% 37,96% 9,54% 2,48% 9,54% 12,02% services ,14% 8,21% 1,66% services ,62% 8,72% 1,66% 1,66% 1,66% 3,32% Sector Downstream (GDP) decomposition (US $, mio) total value added (GDP) pure domestic Low income countries Upstream (final demand) decomposition (%) (US $, mio) (%) GVC participation index indirectly indirect direct value exported Sector total final demand pure domestic value added forward backward total added imports value added imports directly exported value added primary ,83% 15,66% 2,51% primary ,74% 13,13% 2,14% 2,51% 2,14% 4,64% food ,65% 11,30% 1,05% food ,19% 30,68% 4,13% 1,05% 4,13% 5,18% textiles ,07% 63,77% 2,16% textiles ,80% 51,38% 10,82% 2,16% 10,82% 12,99% manufacture ,83% 44,02% 22,15% manufacture ,30% 49,70% 12,00% 22,15% 12,00% 34,15% motor vehi ,27% 19,67% 2,06% motor vehi ,12% 69,40% 18,48% 2,06% 18,48% 20,55% services ,46% 14,61% 3,93% services ,01% 18,83% 3,16% 3,93% 3,16% 7,09% 26

27 Review ERP, CT formula Diakantoni and Escaith (2012) element of the requirement coefficients matrix B (total requirements of good i in the production of a unit of good j, both direct plus indirect). Chen, Jacks, and Ma (2013) add to the D&E definition the estimated trade elasticities: export supply elasticity linear approximation of the tariff pass-through Rouzet and Miroudot (2013) Import demand elasticity results from the element-by-element multiplication of A and T (nominal tariff matrix)

28 The extended GTAP model qxs (i,r,s) _/ \ / \ / \ / \_ dva_reimp + fvad_imp + fvaind_imp (i,r,s) (i,r,s) (i,r,s) 28

29 Noticeable differences in the direct VA exports from the two sources: The shares of VA exports of final goods in gross exports (column 1) are much bigger in GTAP results than in WIOD s (for all countries except Turkey) The opposite trend is observed for intermediates (column 2). Source: Lin and Wang,

30 30

31 Country/region, origin of VA United States imports from China Ad Tradeweighted valorem Uniform tariff equivalents import average (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) τ_fvab τ_dva τ_fvai τ_fvatot τ_gross United States imports from European Union 28 Ad Tradeweighted valorem Uniform tariff equivalents import average (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) τ_fvab τ_dva τ_fvai τ_fvatot τ_gross (eu) (usa) (chn) (hics) (mics) (lics) Sector-generic 1,26 1,11 1,21 1,21 1,38 1,42 1,27 1,27 0,90 Agriculture 0,01 0,00 0,00 0,00 0,00 0,00 0,01 0,01 2,00 Extraction 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Food 0,08 0,03 0,02 0,03 0,07 0,07 0,08 0,08 2,00 Textiles 0,24 0,15 0,35 0,15 0,20 0,21 0,24 0,24 8,00 Wood 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Petroleum 0,01 0,03 0,02 0,15 0,28 0,30 0,05 0,05 2,00 Chemicals 0,32 0,35 0,21 0,33 0,34 0,32 0,32 0,32 1,00 Metals 0,12 0,11 0,10 0,13 0,16 0,19 0,13 0,13 2,00 MotorVehi 0,13 0,14 0,13 0,13 0,11 0,10 0,13 0,12 1,00 ElecEquip 0,27 0,02 0,04 0,02 0,01 0,01 0,01 0,01 0,00 Machinery 0,04 0,24 0,29 0,22 0,17 0,16 0,25 0,25 1,00 Manufacture 0,04 0,03 0,04 0,03 0,03 0,04 0,04 0,04 1,00 Country/region, origin of VA (chn) (usa) (eu) (hics) (mics) (lics) Sector-generic 2,16 1,95 1,70 1,42 1,81 1,86 2,03 2,41 2,84 Agriculture 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 1,00 Extraction 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 Food 0,03 0,02 0,01 0,00 0,02 0,01 0,02 0,02 3,00 Textiles 1,10 1,01 0,67 0,55 0,71 0,61 0,99 1,40 12,00 Wood 0,03 0,02 0,02 0,01 0,02 0,05 0,03 0,03 1,00 Petroleum 0,00 0,00 0,00 0,00 0,00 0,01 0,00 0,00 0,00 Chemicals 0,22 0,22 0,20 0,18 0,26 0,37 0,22 0,22 3,00 Metals 0,18 0,11 0,14 0,12 0,21 0,23 0,17 0,17 3,00 MotorVehi 0,06 0,06 0,08 0,05 0,04 0,04 0,06 0,06 2,00 ElecEquip 0,08 0,11 0,10 0,13 0,09 0,06 0,09 0,08 0,00 Machinery 0,35 0,32 0,43 0,33 0,38 0,38 0,35 0,33 1,00 Manufacture 0,12 0,06 0,06 0,04 0,07 0,09 0,10 0,10 2,00 31

32 Country/region, origin of VA (eu) (chn) (usa) (hics) (mics) (lics) Sector-generic 6,52 6,20 6,20 6,30 6,22 5,87 6,47 6,46 7,04 Agriculture 0,07 0,02 0,02 0,05 0,08 0,04 0,06 0,06 13,00 Extraction 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 1,00 Food 0,16 0,05 0,05 0,08 0,14 0,18 0,16 0,16 12,00 Textiles 0,24 0,31 0,31 0,16 0,24 0,25 0,24 0,25 10,00 Wood 0,07 0,02 0,02 0,03 0,04 0,03 0,06 0,06 2,00 Petroleum 0,00 0,00 0,00 0,04 0,08 0,08 0,01 0,01 5,00 Chemicals 0,75 0,48 0,48 0,82 0,97 0,89 0,76 0,79 6,00 Metals 0,39 0,25 0,25 0,35 0,47 0,50 0,38 0,38 4,00 MotorVehi 2,18 2,17 2,17 2,35 2,13 1,91 2,19 2,17 16,00 ElecEquip 0,10 0,27 0,27 0,16 0,09 0,08 0,11 0,11 2,00 Machinery 2,43 2,49 2,49 2,17 1,88 1,77 2,37 2,35 6,00 Manufacture 0,12 0,11 0,11 0,09 0,10 0,12 0,12 0,12 16,00 Country/region, origin of VA China imports from European Union 28 Ad Tradeweighted valorem Uniform tariff equivalents import average (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) τ_fvab τ_dva τ_fvai τ_fvatot τ_gross China imports from United States Ad Tradeweighted valorem Uniform tariff equivalents import average (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) τ_fvab τ_dva τ_fvai τ_fvatot τ_gross (usa) (chn) (eu) (hics) (mics) (lics) Sector-generic 4,62 4,13 4,68 4,49 4,57 4,57 4,61 4,59 4,78 Agriculture 0,29 0,10 0,15 0,13 0,14 0,18 0,26 0,29 3,00 Extraction 0,00 0,00 0,00 0,00 0,00 0,01 0,00 0,00 1,00 Food 0,29 0,09 0,16 0,17 0,22 0,20 0,27 0,27 10,00 Textiles 0,11 0,20 0,14 0,09 0,12 0,11 0,11 0,12 7,00 Wood 0,06 0,03 0,03 0,03 0,02 0,02 0,04 0,05 1,00 Petroleum 0,02 0,01 0,03 0,14 0,19 0,50 0,04 0,04 4,00 Chemicals 1,02 0,70 1,26 1,18 1,19 1,56 1,05 1,06 6,00 Metals 0,34 0,19 0,25 0,28 0,34 0,35 0,33 0,33 4,00 MotorVehi 1,04 1,45 1,47 1,32 1,25 0,84 1,09 1,06 12,00 ElecEquip 0,07 0,23 0,10 0,13 0,11 0,07 0,08 0,08 1,00 Machinery 1,28 1,05 0,98 0,90 0,88 0,65 1,21 1,18 5,00 Manufacture 0,11 0,09 0,09 0,10 0,10 0,08 0,11 0,10 14,00 32

33 THE GENERAL EQUILIBRIUM MODEL THE BEHAVIORAL APPROACH TO TARIFF AGGREGATION EXTENDING THE EQUIVALENCE APPROACH TO A VALUE-ADDED FRAMEWORK Set up a small tariff-distorted competitive trading economy with constant returns to scale and a representative agent. The indirect trade utility function (Woodland, 1980) summarizes all consumption and production decisions within the economy: lump-sum income from abroad factor endowments restricted profit function maximum level of utility a trading economy can obtain, when the restricted profit functions plus the lump-sum income from abroad is substituted for the disposable income in the indirect utility function In competitive equilibrium, unit costs equals prices, then the unit cost function can be substituted for the p vector. factor prices unit cost functions 33

34 The GE model (cont.) o Generalization of Roy's Identity: the derivatives of the indirect factor trade utility function with respect to factor prices are proportional to the factor content of net imports (Neary and Schweinberger, 1986). Import demand factor content functions (duality): more on this price of factor k in country r DIRECT FACTOR REQUIREMENT COEFFICIENTS: cost-minimizing factor k per unit of output in sector j country r We consider total factor requirements (direct + indirect) in order to compute the actual factor content of exports and imports can be traced (Trefler and Zhu, 2010): country s exports to the world country s bilateral imports MULTIPLIER MATRIX: total output directly or indirectly required to produce one unit of output Assumptions: separability in the production function (primary factors/intermediates), and fixed intermediate input proportions 34

35 The value added content of bilateral imports (Foster-McGregor and Stehrer, 2013) Multiplying physical factor requirement coefficients by factor prices and summing over all factors (VA shares), we use value-added multipliers to decompose bilateral imports according to where the VA is generated: An aggregate decomposition (source-based) which allows to obtain a much more detailed (and still simple) framework in analyzing the systemic, global effects of trade policy on production networks. Definition of the uniform tariff equivalents: uniform tariff that, if imposed on imports instead of the existing structure of protection, would leave i. the direct exporter value added initially distorted prices int l prices equilibrium at the point of reference ii. the reflected value added iii. the indirect foreign value added at its current level Inter l prices are expressed as a function of the tariff vector (T) in order to allow for endogenous world prices (Salvatici, 2001; Antimiani and Salvatici, 2005). 35

36 EU tariffs on imports from China and US 36

37 Outline Introduction The GVCs analysis and the measurement of protection: How far we have come Methodological framework Theoretical developments (G.E.) Data and implementation issues: The modified GTAP model with a value added decomposition of trade flows The expanded GTAP database with sourcing information Selected results and conclusions 37

38 Data for GVCs analysis OECD / WIOD Databases: Broader time coverage National supply and use tables integrated with bilateral trade statistics Processing trade (for China, OECD IOT only) GTAP-MRIO Database: Consistency (a good source for reconciled input-output and trade data) Benchmarked on bilateral trade statistics World-wide and a broad sector coverage Rich details on policy 38